Divergence Strategy - Hidden Bullish Divergence and Hidden Bearish Divergence Trading
Hidden Divergence Trading Strategy PDF - Hidden Divergence Strategy Guide
Hidden divergence trading strategy is used as a possible sign for a forex market trend continuation after the price has retraced. Hidden divergence is a signal that the original Forex trend is resuming. This is the best divergence trading setup to trade because it is in the same direction as that of the continuing forex market trend.
Hidden Bullish Divergence - Hidden Divergence Trading PDF
Hidden bullish forex divergence trading setup happens when 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. Hidden bullish divergence occurs when there is a retracement in an upward Forex trend.
The example below shows an image of this divergence trading setup, from the screenshot the price made a higher low (HL) but the indicator made a lower low (LL), this shows that there was a divergence signal between the currency price and indicator. This signal shows that soon the forex market uptrend is going to resume. In other words it shows this was just a retracement in an uptrend.
Divergence trading strategy
This confirms that a retracement move is complete and indicates underlying strength of a forex uptrend.
Hidden Bearish FX Trading Divergence
This setup happens when 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 Forex trend.
The example below shows an image of this setup, from the screenshot the price made lower high (LH) but the technical indicator made a higher high (HH), this shows that there was a divergence between the price & the indicator. This shows that soon the forex market downtrend is going to resume. In other words it shows this was just a retracement in a downward trend.
Divergence trading strategy
This confirms that a retracement move is complete and indicates underlying strength of a forex downtrend.
Other popular technical indicators used are CCI indicator (Commodity Channel Index), Stochastic Oscillator, RSI and MACD indicators. MACD and RSI are the best indicators to use.
NB:Hidden divergence is the best type to trade because it gives a forex signal that's in the same direction with the current forex market trend, thus it has a high reward to risk ratio. It provides for the best possible entry.
However, a trader should combine this setup with another technical indicator like the stochastic oscillator or moving average indicator and buy when the currency is oversold, and sell when the currency is overbought.
Combining Hidden Forex Trading Divergence with Moving Average FX Trading Crossover Strategy
A good indicator to combine these setups is the moving average indicator using the moving average cross-over method. This will create a good trading strategy.
Moving Average Crossover Technique - Divergence Trading Strategy
In this forex divergence strategy, once the trading signal is given, a trader will then wait for the moving average cross over technique to give a buy/sell trading signal in the same direction, if there's a bullish divergence setup between the forex price and indicator, wait for the moving average crossover system to give an upwards cross over forex signal, while for a bearish divergence setup wait for the moving average crossover system to give a downward bearish crossover forex signal.
By combining this Divergence trading strategy with other indicators this way a trader will avoid whipsaws when it comes to trading with this divergence forex signal.
Combining Divergence Trading with Fibonacci Retracement Levels
For this forex trading examples we shall use an upwards forex market trend. The currency pair is GBP USD. We shall use the MACD trading technical indicator.
Because the hidden divergence is just a retracement in an upwards forex trend we can combine this divergence forex signal with the most popular forex retracement tool that is the Fibonacci retracement levels. The forex trading example below shows that when this forex divergence trading setup appeared on the forex chart, the forex price had just hit the 38.20% level. When forex price tested this level, this would have been a good level to place a buy order on the GBP USD currency.
Forex Divergence Trading Strategy Setup - Hidden Bullish Divergence Forex Strategy
Combining with Forex Trading Fib Expansion Levels
In the example above once the forex buy trade was placed, a trader would then need to calculate where to take profit for this forex trade. To do this one would need to use the Forex Trading Fib Expansion Levels.
The Fibonacci expansion was drawn as shown on the forex chart below.
Divergence Trading Strategy Setup
For this forex example there were three take profit areas:
Fibonacci Expansion Level 61.80% - 131 pips profit
Forex Fibonacci Expansion Level 100.0% - 212 pips profit
Forex Fibonacci Expansion Level 161.8% - 337 pips profit
From this forex divergence strategy combined with Fibonacci would have provided a good trading strategy with a good amount of profit set using these Fibonacci take profit areas.
