Divergence is a forex trading strategy that is widely employed by currency traders all over the world. It is the disagreement between the momentum indicators or oscillators and the price. Indicators commonly utilized include the Relative Strength Index (RSI), Stochastics, and Moving Average Convergence/Divergence (MACD).
What is Hidden Divergence Forex?
Hidden divergence is similar to ‘standard’ divergence in that it occurs when the price of an asset and an indicator move in different directions. However, while ordinary divergence might warn you of a prospective reversal or change in price direction, hidden divergence can inform you when a trend is likely to continue. Hidden Forex divergence informs about the continuation of the trend. However, it is tough to identify in a trading terminal. Hidden Forex divergence signals the opening of a buy or sell position. If there is a hidden bearish divergence in the market, the price chart will continue to trend downward. The price will climb when there is a hidden positive divergence on the chart.
Hidden Divergence Forex Strategy
To detect evidence of hidden divergence and the likely continuance of a trend, you may want to first select an indicator to use and recognize that a trend is occurring. The stochastic indicator, the MACD, and the OsMA are all common indicators to utilize. However, practically all indicators can be utilized to find divergence. Hidden Forex divergence in Forex informs about the continuation of the trend. However, it is tough to identify in a trading terminal. Hidden Forex divergence signals the opening of a buy or sell position.
If there is a hidden bearish divergence in the market, the price chart will continue to trend downward. The price will climb when there is a hidden positive divergence on the chart. To spot the hidden bearish divergence in Forex, you’ll probably have to first identify the candle peaks or price highs, as well as the indicator. Hidden divergence can be detected using the MACD indicator. This circumstance arises only when the price falls. If the indicator displays a divergence at this time, a downward movement is likely in the future. To find hidden bullish divergence, you may want to pay attention to the chart’s lows as well as the indicator. This type of divergence occurs when the market is rising, drawing high lows, and the indicator is falling.
Bullish Hidden Divergence
If the price of an asset makes a succession of higher lows, it may indicate that an uptrend is in progress. If you notice that the indicator has made a succession of lower lows at the same time, you have discovered hidden divergence. In this situation, it indicates that the uptrend may continue and that you could consider going long or buying the asset.
Bearish Hidden Divergence
A series of lower highs in the price of an asset can signal that a downtrend is beginning. If you see that the indicator has made a succession of higher highs at the same time, you have discovered hidden divergence. In this situation, it indicates that the decline may continue and that you could consider going short or selling the asset.
Hidden Divergence Forex Pros & Cons
- The Hidden Divergence Strategy can be used to signal potential trend reversal and trend continuation; hence traders may act accordingly.
- This technique may be advantageous for traders who aim for a well timed entry.
- Divergence patterns are easy to identify in retrospect but may be difficult to spot in real time. This is because the market’s emotional state will get you excited about a bullish bump, only to discover later that it was a bearish hidden divergence setup.
- Risk-to-reward ratios are less trustworthy when hidden divergence develops late in a trend. The majority of the trend has passed, and by the time you wait for the price to diverge from the oscillator, you’ve entered the trend at a worse price point.
- Price trends for smaller assets may not be as consistent as those found in larger markets. A smaller market has fewer buyers and sellers, making it more volatile and prone to negative tics.
Untrained eyes may have difficulty detecting hidden divergence. However, with practice, you will be able to identify and capitalize on divergences. Hidden and regular divergence may be seen on all chart time frames, so you’ll have lots of opportunities to practice identifying it. Using a technical indicator is a crucial component for detecting divergence. Most oscillators (indicators) will function properly. Keep in mind, however, that adding more oscillators to the chart does not imply a more reliable indication. Choose the oscillator or charting tool with which you are most familiar. Whatever signal you use, it will help you spot both regular and hidden divergence.
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