Bullish Hidden Divergence vs Bearish Hidden Divergence - Hidden Divergence Trading

Hidden Bullish Divergence vs Bearish Divergence

Hidden divergence is used by traders as a possible sign for a trend continuation after the price has retraced. It is a signal that the original Forex trend is resuming. This is best set up to trade because it is in same direction as that one of the continuing market trend.

Hidden Bullish Trade Divergence

This pattern setup happens when trading price is making a higher low ( HL ), but the oscillator (technical indicator) is showing a lower low ( LL ). To remember these setups easily think of these setups as W shapes on Chart patterns. It occurs when there is a retracement in an upwards trend.

The example below shows an image of this setup, from the screen-shot the price made a higher low ( HL ) but the technical indicator made a lower low ( LL ), this highlights that there was a divergence trade signal between the price and indicator. This signal highlights that soon the market uptrend is going to resume. In other words it displays this was just a retracement in an uptrend.

This confirms that a retracement move is exhausted & illustrates underlying momentum of an uptrend.

Hidden Bearish Trade Divergence

This pattern setup happens when trading price is making a lower high ( LH ), but the oscillator is showing a higher high ( HH ). To remember these setups easily think of these setups as M shapes on Chart patterns. It occurs when there is a retracement in a downwards trend.

The example below shows an image of this setup, from the screen-shot the price made a lower high (LH) but the indicator made a higher high (HH), this highlights that there was a divergence between the price and the technical indicator. This highlights that soon the market downtrend is going to resume. In other words it displays this was just a retracement in a downwards trend.

This confirms that a retracement move is exhausted and indicates underlying strength of a downtrend.

Other popular technical indicators used are CCI technical indicator (Commodity Channel Index Indicator), Stochastic Oscillator, RSI & MACD. MACD & RSI are the best indicators.

NB: Hidden divergence pattern setup is the best type divergence pattern setup to trade because it gives a signal that's in the same direction with the current trend, thus the setup has a high reward to risk ratio. This setup provides for the best possible market entry.

However, one should combine this setup with another indicator like the stochastic oscillator or moving average and buy when the currency is oversold, and sell when the currency is overbought.

Combining Hidden Divergence Pattern with MA Crossover Strategy Method

A good technical indicator to combine these setups is the moving average indicator using the moving average cross-over method. This will create a good strategy.

MA Crossover Technique

In this strategy, once the signal is given, one will then wait for the MA cross over technique to give a buy/sell signal in same direction, if there's a bullish divergence setup between the price and technical indicator, wait for the MA crossover system to give an upwards cross over signal, while for a bearish divergence set-up wait for the MA cross-over system to give a downward bearish crossover signal.

By combining this signal with other technical indicators this way a trader will avoid whip-saws when it comes to trading this signal.

Combining with Forex Trading Fib Retracement Levels

For this example we will use an upward market trend. The currency pair is GBP USD. We shall use the MACD indicator.

Because the hidden divergence pattern is just a retracement in an upwards trend we can combine this signal with most popular retracement tool that is the Fibo retracement areas. The example below displays that when this setup appeared on the chart, the price had just hit the 38.20% level. When price tested this level, this would have been a good level to place a buy order on the GBP USD currency.

Combining with Forex Trading Fib Expansion Levels

In the example shown above once the buy 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 Forex Trading Fib Expansions.

The Fibonacci expansion was drawn as illustrated & shown on the chart as shown & illustrated below.

For this example there were Three take profit levels:

Expansion Level 61.80% - 131 pips profit

Expansion Level 100.00% - 212 pips profit

Expansion Level 161.80% - 337 pips profit

From this strategy combined with Fibonacci would have provided a good strategy with a good amount of profit set using these take profit areas.