In the previous article, we discussed regular divergences; today, let’s talk about hidden divergences.
What exactly what is hidden divergence?
Divergences can be used to suggest both a potential trend reversal and a possible trend continuation (price continues to move in its current direction).
Remember that the trend is your buddy, therefore if you can get a signal that the trend will continue, take advantage of it!
Hidden bullish divergence occurs when the price makes a higher low (HL) while the oscillator shows a lower low (LL).
Hidden Bullish Divergence
This is shown when the pair is on a UPTREND.
When the price makes a higher low (HL), check to see if the oscillator follows suit. If it doesn’t and instead forms a lower low (LL), we have some concealed divergence on our hands.
Hidden Bearish Divergence
Finally, we have hidden bearish divergence.
This happens when the price makes a lower high (LH) while the oscillator makes a higher high (HH).
You’ve undoubtedly surmised that this happens during a DOWNTREND.
When you detect concealed bearish divergence, it is likely that the pair will continue to fall and the downturn will continue.
Let’s go over everything you’ve already learned about concealed divergence.
If you’re a trend watcher, you should spend some time looking for hidden divergence.
If you happen to notice it, it can help you get a head start on the trend.
Does that make sense?
Keep in mind that regular divergences might indicate trend reversals, whilst hidden divergences indicate trend persistence.
- Regular divergences = possible trend reversal
- Hidden divergences = possible trend continuation
Next Lesson: How to Trade Divergence