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Hidden Bullish and Stock Trading 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 signal that the original stock trend is resuming. This is the best setup to trade because it is in the same direction as that of the continuing market trend.


Stock Trading 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 upward Stock trend.


The example explained below shows an image of this stock trading setup, from the screenshot the stocks price made a higher low (HL) but the 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 trading market up stock trend is going to resume. In other words it shows this was just a retracement in an upward stock trend.

Stock Trading Hidden Bullish Divergence Example in Stock Trading



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


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

Stock Trading Hidden Bearish Divergence Example in Stock Trading



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


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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 signal in the same direction, if there is a bullish divergence setup between the stocks 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 signal with other indicators this way one will avoid whipsaws when it comes to trading this stock signal.


Combining with Stock Trading 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 trend we can combine this stock signal with the most popular retracement tool that is the Fibonacci retracement levels. The example 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.

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



Combining with Stock Trading Fibonacci Expansion Levels

In the stocks 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 Stock Trading Fibonacci Expansion Levels.


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

Stock Trading Fibonacci Expansion Levels Combined with Stock Trading 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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