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Hidden Bullish and Hidden Bearish Divergence Stock Trading

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

 

Hidden Bullish Divergence

This setup happens when stock 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 upward Stock trend.

 

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

Hidden Bullish Divergence Example in Stock Trading



This confirms that a retracement move is complete and indicates underlying strength of an upward stock trading trend.

 

Hidden Bearish Divergence

 

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

Hidden Bearish Divergence Example in Stock Trading

 


 

This confirms that a retracement move is complete and indicates underlying strength of a downward stock trading trend.

 

Other popular indicators used are CCI indicator (Commodity Channel Index), Stochastic Oscillator, RSI and MACD. MACD and RSI are the best 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 stock trader should combine this stock trading setup with another indicator like the stochastic oscillator or moving average and buy when the stock trading instrument is oversold, and sell when the stock trading instrument is overbought.

 

 

Combining Hidden Divergence with Moving Average Crossover Method

A good indicator to combine these stock trading setups is the moving average indicator using the moving average crossover method. This will create a good trading strategy.

Moving Average Crossover Method

Moving Average Crossover Method


In this strategy, once the signal is given, a stock trader will then wait for the moving average crossover method to give a buy/sell stock trading signal in the same direction, if there is a bullish divergence setup between the stock price and indicator, wait for the moving average crossover system to give an upward crossover 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 trading signal with other indicators this way one will avoid whipsaws when it comes to trading this stock trading signal.

 

Combining with Fibonacci Retracement Levels

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

 

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

Hidden Bullish Divergence on Upward Stock Trend Combined With Fibonacci Retracement Levels

 

 

Combining with Fibonacci Expansion Levels

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

 

The Fibonacci expansion was drawn as shown on the chart as shown below.

Fibonacci Expansion Levels Combined with Hidden Bullish Divergence

 

 

For this example there were three 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 Fibonacci would have provided a good strategy with a good amount of profit set using these take profit levels.

 

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