Hidden Bullish and Stock Hidden Bearish Divergence Stock Trading

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

Stocks Hidden Bullish Divergence

This setup happens when stocks price is making 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 upwards Stock trend.

The example illustrated and described below shows an image of this stock setup, from the image the stocks price made a higher low (HL) but the technical indicator made a lower low (LL), this shows that there was a diverging signal between the stocks price and indicator. This signal shows that soon the stocks market up stock trend is going to resume. In other words it shows this was just a retracement in an upwards stock trend.

This confirms that a retracement move is complete & indicates underlying strength of an upwards stocks trend.

Stock Hidden Bearish Divergence

This setup happens when stocks price is making 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 Stock trend.

The example illustrated and described below shows an image of this stock setup, from the image the stocks price made lower high (LH) but the indicator made a higher high (HH), this shows that there was a divergence between the stocks price and indicator. This shows that soon the stocks market down stock trend is going to resume. In other words it shows this was just a retracement in a downward trend.

This confirms that a retracement move is complete & indicates underlying strength of a downward stocks trend.

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

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

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

Combining Hidden Divergence with Moving Average Crossover Method

A good indicator to combine these stock set ups is the moving average indicator using moving average cross-over technique. This will create a good trading strategy.

Moving Average Crossover Technique

In this strategy, once the signal is given, a trader will then wait for the moving average cross over method to give a buy/sell stock trading signal in same direction, if there's a bullish divergence setup between the stocks price and 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 system to give a downward bearish crossover signal.

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

Combining with Stocks Trading Fib Retracement Levels

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

Because the hidden divergence is just a retracement in an upward stock trend we can combine this stock trading signal with most popular retracement tool that is the Fibonacci retracement levels. The example illustrated and explained below shows that when this stocks trading setup appeared on the chart, the stocks price had just hit the 38.2% level. When stocks price tested this level, this would have been a good level to place a buy order.

Combining with Stocks Trading Fib Expansion Levels

In the stocks trading example above once the buy stock trade was placed, a trader would then need to calculate where to set take profit for this trade. To do this one would need to use the Stock Fib Expansion Levels.

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

For this example there were three take profit areas:

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 Fibo would have provided a good strategy with a good amount of profit set using these take profit levels.