Hidden Bullish & Trade Hidden Bearish Divergence Trading

Hidden divergence is used by traders as a possible sign for a trend continuation after the price has retraced. It is a trading signal that the original trend is resuming. This is best setup 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 Chart patterns. It forms when there's a retracement in an upwards trend.

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

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 is showing a higher high ( HH ). To remember them easily think of them as M-shapes on Chart patterns. It forms when there's a retracement in a downwards trend.

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

This confirms that a price retracement move is complete & indicates underlying momentum of a downwards trend.

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

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 crossover system to give an upwards cross-over signal, while for a bearish diverging setup wait for the moving average crossover strategy to give a downward bearish crossover signal.

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

Combining with Fibo Retracement Levels

For this example we shall use an upwards 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 Fib retracement levels. The example illustrated and 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 place a buy trade order.

Combining with Fibo Expansion Levels

In the trading example above 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 trader would need to use the Gold Fibo Expansion Levels.

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

For this example there were 3 take-profit levels:

Expansion Level 61.8% - 131 pips profit

Expansion Level 100.0% - 212 pips profit

Expansion Level 161.8% - 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.