Hidden Divergence vs Regular Divergence

What is Hidden Divergence?

Hidden divergence vs regular divergence – what’s the difference? Either type of divergence can provide a powerful edge with the right trading strategy. In this article, I’m going to show you the difference between hidden divergence and regular divergence.

I’m also going to show you how these two types of divergence should be used, and I’ll give you some tips on trading hidden divergence. Keep reading to learn how to increase your odds of taking winning trend continuation trades.

Hidden Divergence vs Regular Divergence

Hidden divergence is a sign of trend continuation, while regular divergence is a sign of trend reversal. The idea is that regular divergence shows momentum leaving the trend, which could be an early sign of a reversal. Hidden divergence shows momentum coming into the current trend, which makes a continuation more likely.

The charts below show examples of both hidden divergence and regular divergence. I’ve marked the bullish divergence in green and the bearish divergence in red.

Hidden Divergence vs Regular Divergence

In the chart above, you can see some examples of regular MACD divergence. Regular divergence is measured off of the lows of price and the indicator during a downtrend, and off of the highs of price and the indicator during an uptrend.

Starting from the left, price made lower lows while the MACD line made a double bottom. Next, price made a double top while the histogram made lower highs. Finally, price made three consecutive higher highs while the histogram made three consecutive lower highs.

Note: You can learn more about trading MACD divergence or how to trade divergence on other indicators by clicking the links (opens in a new window).

Hidden Bullish MACD Divergence

In the chart above, you can see some examples of hidden MACD divergence. Hidden divergence is measured off of the lows of price and the indicator during an uptrend, and off of the highs of price and the indicator during a downtrend (the opposite of regular divergence).

Starting from the left, price made higher lows while the histogram made lower lows. Next, price made higher lows while the histogram made a double bottom. These are both examples of bullish hidden divergence.

Tips for Trading Hidden Divergence

One technique that can greatly increase your success rate with divergence trading is combining your various divergence patterns with other entry triggers. For the sake of this article, we’ll be using candlestick patterns in combination with hidden divergence.

In the previous chart (above), you’ll notice that I’ve highlighted two candlestick patterns. The first was a bullish engulfing candlestick pattern, and the second was a morning star candlestick pattern. Both of those signals could have helped you time your entry off of those two hidden divergence patterns.

Hidden Bearish Stochastic Divergence

In the chart above, you can see an example of bearish hidden stochastic divergence. Price made a lower high while the stochastic oscillator made a higher high. Remember that, for hidden divergence, we measure off of the highs of price and the indicator in a downtrend.

Notice: I drew the hidden divergence off of the highs in price and where those highs corresponded on the stochastic oscillator. I only considered a new high to be forming after the stochastic had crossed below the 50 line (not visible on this chart) and then crossed back above it.

After this hidden divergence pattern occurred, a bearish engulfing candlestick pattern also occurred. This strong bearish signal could have helped you get the best entry with this setup. Do you see how the candlestick pattern strengthens the case for the hidden divergence pattern and vice versa?

Hidden Bearish RSI Divergence

In the chart above, you can see an example of bearish hidden RSI divergence. Price made a lower high while the RSI made a higher high. A bearish engulfing pattern formed at the second high, confirming our hidden divergence pattern.

Note: This was not a very good bearish engulfing pattern to take, because the engulfing candle did not close in the lower 1/3rd of its rage, which is slightly bullish.

To learn more about how to trade candlestick signals, check out my free price action trading course.

The candlestick signal that I highlighted above was not the first candlestick signal to occur at the lower high. However, if you had correctly placed your stop loss above the highest point in the cycle, this trade would have worked out anyway.

Hidden Divergence vs Regular Divergence – What You Should Know

The difference between hidden divergence and regular divergence is that hidden divergence is drawn off of the highs of price and the indicator in a downtrend. Similarly, it’s drawn off of the lows of price and the indicator in an uptrend. This is the opposite of regular divergence.

Hidden divergence also signals a possible trend continuation. Regular divergence signals a possible trend reversal. Both can be powerful entry signals when combined with other profitable trading strategies.

Hidden divergence vs regular divergence – which do you prefer to use with your trading system? Let me know in the comments below. In my own experience, I’ve found regular divergence to be more useful, but I use both hidden and regular divergence on a regular basis.

Are you still looking for a profitable trading system? I recently changed my main trading system after testing a new one for over a year. Come see why I switched to Day Trading Forex Live.

26 Comments

  1. Chacko PC July 9, 2016
    • Chris July 9, 2016
      • Xabier May 7, 2018
        • Chris May 8, 2018
  2. Ashwini Khanna January 30, 2017
    • Chris January 31, 2017
  3. victor February 20, 2017
    • Chris February 20, 2017
  4. Teycir September 4, 2017
    • Chris September 8, 2017
  5. Andy October 22, 2017
    • Chris October 22, 2017
      • Andy October 22, 2017
        • Chris November 1, 2017
  6. Alberto December 6, 2017
    • Chris December 7, 2017
      • Alberto December 7, 2017
        • Chris December 9, 2017
  7. rockbusiness December 16, 2017
    • Chris December 16, 2017
      • rockbusiness December 16, 2017
        • Chris December 17, 2017
  8. EdB March 16, 2018
    • Chris March 17, 2018
  9. Festus March 30, 2018
    • Chris April 1, 2018

Add Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Share
Tweet
15 Shares