Divergence Strategy
Hidden divergence trading strategy is used as a possible sign for a commodity market commodity trend continuation after the commodities trading price has retraced. It is a trading signal that the original commodity trend is resuming. This is the best divergence trading setup to trade because it's in the same direction as that of the continuing market trend.
Commodity Trading Hidden Bullish Divergence
This divergence trading setup happens when commodities price is forming a higher low ( HL ), but the oscillator (indicator) is showing a lower low (LL). To remember them easily think of them as W-shapes on Chart patterns. It occurs when there is a retracement in an upward commodities trend.
The examples illustrated & explained below shows an image of this divergence trading set up, from the screen shot the commodities trading price made a higher low (HL) but the indicator made a lower low (LL), this shows that there was a divergence signal between the commodities trading price & indicator. This signal shows that soon the commodity market up commodity trend is going to resume. In other words it shows this was just a retracement in an upwards commodity trend.
Divergence trading strategy
This confirms that a retracement move is complete and indicates underlying strength of an upward commodities trend.
Commodities Trading Hidden Bearish Divergence
This setup happens when commodities price is forming a lower high ( LH ), but the oscillator is showing a higher high (HH). To remember them easily think of them as M-shapes on Chart patterns. It occurs when there is a retracement in a downward commodities trend.
The examples illustrated & explained below shows an image of this commodity setup, from the screenshot the commodities trading price made lower high (LH) but the technical indicator made a higher high (HH), this shows that there was a divergence between the commodities price and indicator. This shows that soon the commodity market down commodity trend is going to resume. In other words it shows this was just a retracement in a downward trend.
Divergence trading strategy
This confirms that a retracement move is complete and indicates underlying strength of a downward commodities trend.
Other popular technical indicators used are Commodities Channel Index technical indicator (CCI), Stochastic Oscillator, RSI and MACD. MACD & RSI are the best technical indicators.
NB: Hidden divergence is the best type to trade because it gives a signal that's in the same direction with the current market trend, thus it has a high reward to risk ratio. It provides for best possible entry.
However, a trader should combine this commodity setup with another indicator like the stochastic oscillator or moving average and buy when the commodities trading price is oversold, and sell when the commodities trading price is overbought.
Combining Hidden Commodity Trading Divergence with Moving Average Commodities Trading Crossover Strategy
A good indicator to combine these commodity setups is the moving average indicator using moving average crossover method. This will create a good trading strategy.
Moving Average Crossover Technique - Divergence trading strategy
In this divergence commodity strategy, once the trading signal is given, a trader will then wait for the moving average cross over technique to give a buy/sell commodity trading signal in same direction, if there's a bullish divergence setup between the commodities price & indicator, wait for the moving average cross-over system to give an upwards cross-over signal, while for a bearish divergence set-up wait for the moving average cross-over system to give a downwards bearish crossover signal.
By combining this Divergence strategy with other indicators this way a trader will avoid whipsaws when it comes to trading with this commodities trade signal.
Combining with Commodity Trading Fibo Retracement Levels
For this example we shall use an upward market trend. The commodity instrument - We shall use the MACD indicator.
Because the hidden divergence is just a retracement in an upwards commodity trend we can combine this commodity signal with most popular retracement tool that's the Fibonacci retracement levels. The example illustrated and explained below shows that when this commodity set-up appeared on the chart, the commodities trading price had just hit the 38.2% level. When commodities trading price tested this level, this would have been a good level to set a buy order.
Divergence trading strategy setup
Combining with Commodity Trading Fibo Expansion Levels
In the commodity example above once the buy commodity trade was placed, a trader would then need to calculate where to set take profit for this trade. To do this a trader would need to use the Commodity Trading Fib Expansion Levels.
The Fibonacci expansion was drawn as shown and illustrated on the commodity chart as shown and illustrated below.
Divergence trading strategy setup
For this example there were 3 take profit areas:
Commodity Fibonacci Expansion Level 61.80% - 131 pips profit
Commodities Trading Fibo Expansion Level 100.0% - 212 pips profit
Commodities Trading Fibo Expansion Level 161.8% - 337 pips profit
From this divergence trading strategy combined with Fibonacci would have provided a good trading strategy with a good amount of profit set using these take profit areas.
