Hidden Bullish & Hidden Bearish Divergence Trading

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

Index Hidden Bullish Divergence Setup

This setup happens when stock price is forming a higher low ( HL ), but the oscillator indicator is displaying a lower low (LL). To remember these setups easily think of them as W shapes on Charts. It forms when there's a price retracement in an up-ward trend.

The illustration explained and shown below shows a screen shot image of this indices formation, from the screen-shot the stock price made higher low (HL) but the indicator made a lower low (LL), this highlights that there was a diverging signal between the stock trading price and indicator. This signal shows that soon the stock trading market uptrend is going to resume. In other words it portrays this was just a retracement in an up-ward trend.

How to Identify Hidden Bullish and Hidden Bearish Divergence Trade Setups

This confirms that a market price retracement move is exhausted & illustrates the under-lying power of an upward trend.

Stock Index Trade Hidden Bearish Divergence Setup

This setup happens when stock price is forming a lower high ( LH ), but the oscillator trading is showing a higher high ( HH ). To remember these setups easily think of them as M shapes on Chart patterns. It forms when there's a retracement in a downward trend.

The illustration explained & illustrated below illustrates a screen shot of this indices formation, from the screen-shot the stock price made lower high (LH) but the trading indicator made a higher high (HH), this displays that there was a divergence between the stock trading price & the indicator. This displays that soon the stock trading market down trend is going to resume. In other words it illustrates this was just a retracement in a downwards trend.

How Do I Identify Hidden Bullish and Hidden Bearish Divergence Setups?

This confirms that a market price retracement move is exhausted and indicates underlying power of a downward trend.

Other popular technical indicators used are CCI indicator (CCI), Stochastic Oscillator Indicator, RSI & MACD. MACD and RSI Indicator are the best technical indicators.

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

However, a stock index trader should combine this stock trading setup with another indicator such as the stochastic oscillator or moving average & buy when indices is oversold, and sell when indices is overbought.

Combining Hidden Divergence Pattern with MA Cross-over Strategy Method

A good technical indicator to combine these setups is the moving average indicator using MA cross over technique. This will create a good trade strategy.

Moving Average Cross-over Strategy Method

Moving Average Cross-over Technique

In this technique, once the signal is given, a trader will then wait for the moving average cross over technique to give a buy/sell stock signal in the same direction, if there is a bullish divergence set up between the stock price & indicator, wait for the moving average crossover system to give an upwards crossover trading signal, while for a bearish diverging pattern wait for the moving average crossover trading system to give a downward bearish cross-over.

By combining this stock signal with other technical indicators this way one will avoid whip-saws in trading this trade signal.

Combining with Trading Fibo Retracement Levels

For this illustration we shall use an upwards market trend. We shall use MACD.

Because the hidden divergence setup is just a retracement in an up-ward trend we can combine this stock trading signal with the most popular/liked retracement indicator that is the Fib retracement levels. The illustrations explained below portrays that when this stock trading setup appeared on chart, trading price had just hit 38.20% level. When stock trading price tested this level, this would have been a nice level to open a buy trade position order.

Indices Trading Hidden Bullish Divergence on Upward Trend Combined with Fibonacci Retracement

Combining with Trading Fib Expansion Levels

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

The Fibo extension was drawn such as shown on stock chart like as illustrated & shown below.

How to Identify Hidden Bullish and Hidden Bearish Divergence Trade Setups

For this example there were 3 tp order 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 indicator would have provided a good trading strategy with a good amount of profit set using the take profit order levels.

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