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We covered regular divergences in the previous lesson, now let’s discuss what hidden divergences are.
What’s a hidden divergence?
Divergences not only signal a potential trend reversalbut can also be used as a possible sign for a trend continuation(price continues to move in its current direction).
Always remember, the trend is your friend, so whenever you can get a signal that the trend will continue, then good for you!
Hidden bullish divergence happens when the price is making a higher low (HL), but the oscillator is showing a lower low (LL).
Hidden Bullish Divergence
This can be seen when the pair is in an UPTREND.
Once price makes a higher low (HL), look and see if the oscillator does the same.
If it doesn’t and makes a lower low (LL), then we’ve got some hidden divergence in our hands.
Hidden Bearish Divergence
Lastly, we’ve got hidden bearish divergence.
This occurs when price makes a lower high (LH), but the oscillator is making a higher high (HH).
By now you’ve probably guessed that this occurs in a DOWNTREND.
When you see hidden bearish divergence, chances are that the pair will continue to shoot lower and continue the downtrend.
Let’s recap what you’ve learned so far about hidden divergence.
If you’re a trend follower, then you should dedicate some time to spot some hidden divergence.
If you do happen to spot it, it can help you jump in the trend early.
Sounds good, yes?
Keep in mind that regular divergences are possible signals for trend reversals while hidden divergences signal trend continuation.
- Regular divergences = signal possible trend reversal
- Hidden divergences = signal possible trend continuation
In the next lesson, we’ll show you some real-world examples of when divergences existed and how you could have traded them.
FAQs
hidden divergence is similar to standard divergence – where the price of an asset and an indicator move in opposite directions. … it can tell you ahead of time when a trend looks set to continue, allowing you to enter a trend when it still has some time to run.
Is hidden divergence better than regular divergence? ›
Regular divergence can predict a short-term correction, and hidden is less reliable; therefore, it's worth adding indicators and patterns that forecast future price direction. You can test various technical analysis tools on the TickTrader platform for free.
What is the logic behind hidden divergence? ›
Hidden Bearish Divergence
This occurs when price makes a lower high (LH), but the oscillator is making a higher high (HH). By now you've probably guessed that this occurs in a DOWNTREND. When you see hidden bearish divergence, chances are that the pair will continue to shoot lower and continue the downtrend.
Is hidden bullish divergence strong? ›
But not every hidden bullish divergence is productive. There are multiple cases of unsuccessful hidden bullish divergence. The best position for the pattern to form is after a downtrend. While close to the bottom end of the downtrend, it is a strong trading signal.
What is the psychology behind divergence? ›
A definition of divergent thinking in psychology entails utilizing the mind in inventive, free-flowing ways to solve a given problem and find multiple creative solutions. Divergent thinking is characterized by "thinking outside of the box," and tends to involve the free-flow of concepts and spontaneous ideas.
What is divergence in real life? ›
Divergence describes how fast the area of your span is changing. For example, imagine that the river gets faster and faster the further you go downstream. Then your friends in front of you will keep getting further and further ahead, and your span stretches out. This is an example of a positive divergence.
Which divergence is most accurate? ›
The best divergence indicators mt4 are MACD, RSI, stochastic, OA. They are user-friendly and simple but provide quite accurate trading signals. You can learn more about stochastic oscillator trading forex in the article Stochastic Oscillator: guide for using indicator in Forex trading.
What is a bullish hidden divergence in MACD? ›
Bullish hidden divergence occurs within a downtrend, signaling a potential reversal or a weakening of the downward momentum. In this scenario, the price creates a lower low, indicating a new low point that surpasses the previous one. Simultaneously, the oscillator, such as the RSI or MACD, forms a higher low.
How to trade RSI hidden divergence? ›
Hidden RSI Divergence is extremely strong predictor of a trend continuation or trend change. There are crazy amount of divergences happening at all the time frames. Find one, wait for the price to test it, look for the re entry price you want, confirm with other tools in your technical tool box and then trade.
What is negative hidden divergence? ›
If the stock is making new highs, but the RSI starts making lower highs, this warns the price uptrend may be weakening. This is negative divergence. The trader can then determine if they want to exit the position or set a stop loss in case the price starts to decline. Positive divergence is the opposite situation.
Divergence is a popular concept in technical analysis that describes when the price is moving in the opposite direction of a technical indicator. There are two types of divergences: Regular divergence. Hidden divergence.
Is hidden divergence a continuation? ›
But unlike regular divergence, which often signals a potential reversal, Hidden Divergence is a continuation setup… It means that in Hidden Divergence trades, the goal is to capture price movements that align with the prevailing trend, allowing traders to capitalize on the momentum already in play.
What is the best indicator for hidden divergence? ›
Identifying hidden divergence requires a detailed analysis of price action and the RSI indicator. Begin by examining the price action for higher lows in an uptrend or lower highs in a downtrend. Then, compare these points to the RSI to see if it shows lower lows in an uptrend or higher highs in a downtrend.
What is the most powerful divergence? ›
Divergences, whether bullish or bearish in nature, have been classified according to their levels of strength. The strongest divergences are Class A divergences; exhibiting less strength are Class B divergences, and the weakest divergences are Class C.
Why is it called hidden divergence? ›
HIDDEN Divergence is the perfect companion to Regular Divergence because it identifies Continuation moves with the current trend. What is Hidden Divergence? Hidden Divergence is called “hidden” because it is not always obvious – a Strategy that detects the condition is needed so as to find all occurrences.
What is a good example of divergence? ›
The water spreading out from the faucet is an example of divergence, and the act of scrubbing is your curl! The divergence of a vector field measures the fluid flow “out of” or “into” a given point. The curl indicates how much the fluid rotates or spins around a point.
Is divergence bullish or bearish? ›
A situation where the price candles' tops or bottoms point in a different direction from the corresponding tops or bottoms of the indicator's signal line is called a divergence. Such divergence can be bullish or bearish.
What does it mean when there is no divergence? ›
Zero divergence means there is no change in magnitude of the Vector as we move to the next point in the direction of the Vector.
