Hidden Bullish & Trade Hidden Bearish Divergence Trading

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

Gold Hidden Bullish Divergence Pattern

This setup occurs when trading price is forming a higher low (HL), but the oscillator (indicator) is displaying a lower low (LL). To remember them easily think of them as W shapes on Charts. It forms when there's a retracement in an upward trend.

The examples illustrated and explained below portrays an screen shot of this trading formation, from the screen-shot the price made higher low (HL) but the technical indicator made a lower low (LL), this portrays that there was a diverging trade signal between the price & indicator. This signal illustrates that soon the market up trend is going to resume. In other words it portrays this was just a retracement in an upward trend.

Examples of Trade Divergence Setups in Charts

This confirms that a price retracement move is complete & illustrates underlying momentum of an upwards trend.

XAUUSD Hidden Bearish Divergence Pattern

This setup occurs when trading price is forming a lower high ( LH ), but the oscillator trading is displaying a higher high ( HH ). To remember them easily think of them as M-shapes on Charts. It forms when there's a retracement in a downward trend.

The examples illustrated and explained below portrays an screen shot of this trading formation, from the screen-shot the price made a lower high ( LH ) but the indicator formed a higher high ( HH ), this illustrates that there was a divergence between the price and the indicator. This illustrates that soon the market downtrend is going to resume. In other words it portrays this was just a retracement in a downwards trend.

How Do I Identify Trading Bullish Hidden Divergence and Trading Bearish Hidden Divergence?

This confirms that a price retracement move is complete and indicates the under-lying momentum of a downward trend.

Other popular indicators used are CCI trading indicator (Commodity Channel Index (CCI) Trading Indicator), Stochastic Technical Indicator, RSI and MACD. MACD & RSI Indicator are the best indicators.

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

However, a xauusd trader should combine this trading setup with another indicator like the stochastic oscillator or moving average & buy when gold is oversold, and sell when gold is overbought.

Combining Hidden Divergence Pattern with MA Crossover Method

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

Divergence Strategies PDF Tutorial

Moving Average Crossover Technique

In this method, once the trading signal is given, a trader will then wait for the moving average cross over technique to give a buy/sell signal in same direction, if there is a bullish divergence set up between the price & indicator, wait for the moving average cross-over trading method to give an upward crossover signal, while for a bearish diverging setup wait for the moving average cross-over trading strategy method to give a downwards bearish cross-over signal.

By combining this signal with other indicators this way one will avoid fake outs in trading this signal.

Combining with Fibonacci Retracement Levels

For this example we shall use an upward market trend. We shall use MACD indicator.

Because the hidden divergence setup is just a price retracement in an upwards trend we can combine this trading signal with most popular retracement tool that's the Fibonacci retracement levels. The example illustrated & explained below portrays that when this trading setup formed on the trading chart, price had just hit 38.20% level. When price tested this level, this would have been a good level to open a buy trade order.

What is the Meaning of Fib Retracement Indicator?

Combining with Fibo Extension Levels

In the trading above example once the buy trade was placed, a trader would then need to calculate where to put take profit for this trade. To do this a gold trader would need to use the Gold Fibo Expansion Levels.

The Fib extension was drawn as shown and illustrated on the trading chart as cited below.

How to Identify Trading Bullish Hidden Divergence and Trading Bearish Hidden Divergence

For this example there were three take-profit levels:

Expansion Level 61.80% - 131 pips profit

Extension Level 100.00% - 212 pips profit

Expansion Level 161.80% - 337 pips profit

From this strategy combined with Fibo indicator would have provided a good trading strategy with a good amount of profit set using these take profit order levels.

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