What is Divergence?Divergence in trading occurs when the price of an asset moves in the opposite direction of a technical indicator. This mismatch indicates that the momentum behind the price action may be weakening, often suggesting a potential reversal. By learning to spot divergence, traders can anticipate market changes, either as a reversal in trend (regular divergence) or a trend continuation (hidden divergence).
Types of Divergence
Regular Divergence
Hidden Divergence
1. Regular Divergence
Regular divergence is a classic form that suggests a potential trend reversal. It happens when the price action and an oscillator (like RSI or MACD) display conflicting information, often indicating that the current trend may be losing strength.
Types of Regular Divergence:
Bullish Regular Divergence: Occurs when the price makes lower lows, but the indicator makes higher lows. This suggests a potential reversal to the upside as the selling momentum weakens.
Bearish Regular Divergence: Occurs when the price makes higher highs, but the indicator forms lower highs. This indicates potential downside momentum, often preceding a downtrend.
How to Identify Regular Divergence:
Use an oscillator such as the RSI, MACD, or stochastic indicator.
Look for situations where the price action forms new highs or lows, while the oscillator forms opposite lows or highs.
Confirm the trend by observing the price trendlines to determine the type of regular divergence (bullish or bearish).
Trading Regular Divergence:
Bullish Regular Divergence: When you identify bullish regular divergence, consider entering a long position once the price shows signs of reversal, like a bullish engulfing candle or another bullish reversal pattern.
Bearish Regular Divergence: For bearish regular divergence, a short position may be taken once you confirm a bearish reversal pattern, such as a bearish engulfing candle or shooting star formation.
Example:
If the price of a stock is making higher highs but the RSI is making lower highs, this is a bearish regular divergence. You could consider shorting the asset or closing long positions as a precaution, anticipating a potential trend reversal.
2. Hidden Divergence
Hidden divergence indicates potential trend continuation. It suggests that although there may be a pullback, the primary trend will likely resume.
Types of Hidden Divergence:
Bullish Hidden Divergence: Occurs when the price forms higher lows, but the indicator makes lower lows. This pattern signals that the uptrend is likely to continue.
Bearish Hidden Divergence: Occurs when the price makes lower highs, but the oscillator makes higher highs, indicating a potential continuation of a downtrend.
How to Identify Hidden Divergence:
Observe the trend direction of the price. Hidden divergence typically appears during pullbacks in a strong trend.
Use the oscillator (RSI, MACD, etc.) and compare the highs and lows formed by both the price and indicator.
Confirm the pattern: if the price and indicator form opposing highs or lows, it may indicate hidden divergence.
Trading Hidden Divergence:
Bullish Hidden Divergence: Enter a long position after identifying bullish hidden divergence, especially if the primary trend is upwards and the oscillator is showing a lower low.
Bearish Hidden Divergence: A short position can be considered when bearish hidden divergence is identified, and the primary trend is downwards, with the oscillator showing a higher high.
Example:
Suppose an asset’s price makes higher lows in an uptrend, but the RSI makes lower lows. This indicates bullish hidden divergence, suggesting that the pullback might end, and the uptrend is likely to continue. Enter a long position, placing a stop loss below the recent swing low to manage risk.
Indicators Used for Identifying Divergence
Relative Strength Index (RSI): RSI measures the strength and speed of price movement, making it ideal for identifying overbought and oversold conditions.
Moving Average Convergence Divergence (MACD): MACD tracks the difference between two moving averages of the price and can be used to detect shifts in momentum.
Stochastic Oscillator: This oscillator helps detect potential turning points by comparing the closing price to the range over a set period.
Each of these indicators helps identify divergence differently. For example:
If RSI or Stochastic is diverging from price action, it may indicate that momentum is waning.
MACD can be useful to spot both regular and hidden divergences, especially on larger timeframes.
How to Trade Divergence
Confirm Divergence: Use divergence to identify a potential reversal or continuation pattern, but confirm it with additional signals such as candlestick patterns or volume analysis.
Set Entry Points: Wait for a price action signal (e.g., a candlestick pattern) in the direction indicated by the divergence. A bullish divergence might signal a buying opportunity after a bullish candlestick, while a bearish divergence could indicate a selling opportunity after a bearish pattern.
Use Stop Loss Orders: Place a stop loss slightly below or above recent highs or lows to manage risk. For example, in bullish divergence, place a stop loss below the swing low to protect against downside risk.
Set Profit Targets: Use support and resistance levels, Fibonacci retracement levels, or moving averages to set profit targets.
Tips for Successful Divergence Trading
Combine with Other Indicators: Use moving averages or trendlines to confirm the overall trend direction.
Choose Longer Timeframes for Stronger Signals: Divergence on longer timeframes (e.g., daily or weekly) tends to produce stronger signals than shorter timeframes (e.g., 15-minute or hourly).
Don’t Trade Divergence in Choppy Markets: Divergence is more effective in trending markets. Avoid using divergence in low-volume or range-bound conditions, as it could result in false signals.
Stay Aware of False Signals: Not all divergences result in profitable trades. Always use risk management tools, such as stop losses and position sizing, to minimize potential losses.
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✅Disclaimer: Please be aware of the risks involved in trading. This idea was made for educational purposes only not for financial Investment Purposes.
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Divergencetrading
EURUSD - Technical Analysis [Long Setup]🔹 EURUSD Analysis on 4H chart
- The current Trend is BEARISH
- There is BULLISH divergences
- Reversal pattern is present which is falling wedge
🔹 Trade Plan For 1HR
- Entry Level = 1.08750
- Stop Loss = 1.08339
- TP1 = 1.09170
- TP2 = 1.09653
🔹 Risk Management
- First TP is 1:1
- Second TP is 1:2
🔹 How to Take Trade?
- Only risk 2% of your portfolio
- Take 1% risk entry with 1:1 RR
- Take 1% risk entry with 1:2 RR
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ETH - The Bullish & Bearish CaseToday we take a look at ETH and lay out a variety of trade ideas.
MONTHLY: From the Monthly perspective, ETH remains very Bullish. Essentially, going long ETH anywhere at or below the low of the Monthly MAC is a legitimate spot to buy. The target based on the Monthly chart is around 3,400 (approximately 30% above current price level). From an investment perspective, this is a great area to go long ETH.
WEEKLY: From the Weekly perspective, ETH remains Bearish, as we have not had a confirmed bullish trend change. Right now, ETH is trading at the Weekly MAC high, which is a legitimate place to look for new short entries, or to take profits from any longs taken at recent weekly lows. There is currently H6 bearish divergence setup, but not triggered. If it triggers, I will be shorting ETH to a target of the Weekly MAC low (2,337).
DAILY: From the Daily perspective, ETH remains Bearish. However, we are getting a potential bullish trend change (but not triggered/confirmed). There is H1 bearish divergence setting up right now, and if it triggers, the short trade target would be the Daily MAC low at 2,421.
As you can see, if you are an investor, the current price levels are reasonable areas to load up to the long side. However, the Weekly and Daily are still bearish until bullish confirmation. Daily is in the process of confirming bullish, but not yet. Day trades and shorter term swing trades to the short side are still valid.
Have a great week.
How to REALLY Trade Divergences (One of My Favorite Entries)This tutorial might be short, but it is packed with potent information on how to REALLY trade divergences.
Divergences are one of the BEST ways to catch market reversals. However, from what I have seen, most people do not have a real process for determining when a divergence is actually confirmed/triggered, and then how to determine targets based on the divergence setup.
In other words, most people don't have a plan for trading divergence.
This video will give you a full plan (Setup/Trigger/Follow Through) for trading divergences.
I give full credit to Jake Bernstein, as this is a concept that I learned from him. He is one of the all time greats, and very worth your time to check out.
I hope you found this video insightful.
Have a great week.
Apple - How I'm Looking to Trade Apple This Week Monthly & Weekly MAC strategy suggests dips into the Weekly &/or Monthly MAC low are good setup areas for going long. Essentially, I'm looking to buy the dip if we get a price move into the levels noted in the video. I would not just be buying the MAC lows. I would be looking for entry triggers on my entry timeframes in those areas.
I also point out that there are some Monthly/Quarterly bearish divergences forming, but nowhere near confirmation, so bulls need not worry.
In short, I'm looking to buy the dip on Apple.
Have a great weekend.
15% to 35% Upside Ahead for Corn (Divergence Strategy)Corn recently has had the monthly bullish divergence confirmed with Septembers monthly close. This has major implications for corn, as I anticipate corn to now trade up at least 15% from current prices, up to a max move of approximately 35%. Monthly divergence triggers such as this are signals that the prudent trader must pay attention to. This does not mean I anticipate this market to go straight up from here. However, it does mean that, in my opinion, dips are for buying in the Corn market until we reach these upside targets.
Have a great week.
15% to 30% Upside Ahead for Soybean Meal (Divergence Strategy)Soybean Meal recently confirmed the monthly bullish divergence with Septembers candle close. This is a significant signal that prudent traders should pay close attention to. What this signal implies is that there is a minimum 15% move to the upside from current price ahead for Soybean Meal. The high end target is a 30% upside move. This does not mean this market is going to go straight up from here. In my opinion, dips are for buying in the Soybean Meal market until we reach these upside targets.
Have a great week.
30% to 60% Upside Coming for Natty (Divergence Strategy)A powerful monthly bullish divergence just confirmed on natty.
We see that the CCI had a monthly close which confirmed the bullish divergence setup. In this video I review how to determine targets with this strategy, and how to determine your risk.
I anticipate a minimum 30% rally from current prices for natty, possibly heading up 60% from here. This doesn't mean this market won't have a pullback in the meantime. In my opinion, pullbacks are for buying until these price targets are reached.
If you have any questions about this strategy, feel free to shoot me a message.
Have a great week.
BTC ANALYSIS🔮 #BTC Analysis 💰💰
As we saw that there was a very bullish move in #BTC. Now we expect a correction in #BTC. Also there is a bearish divergence in RSI. We will see a correction first after that we it will again continue to rise.
🔖 Current Price: $65700
⏳ Target Price: $62700-61450
⁉️ What to do?
- We have marked some crucial levels in the chart. We can trade according to the chart and make some profits in #BTC. Keep your eyes on the chart, observe trading volume and stay accustom to market moves.🚀💸
#BTC #Cryptocurrency #Correction #DYOR
SOYBEANS - Are We Close to a Major Bottom? Cycles Say YES.Here is what I am currently watching for SOYBEANS.
-We need to be aware that there is a major bullish divergence setup (not trigger) developing on the quarterly & monthly charts. We need to pay close attention to this setup, because if triggered/confirmed, it implies a massive move up for Soybeans would be on the horizon.
-Interestingly, the Weekly chart has confirmed bullish divergence. The first target (1090) has not yet been hit, but in my opinion, it looks probable that Soybeans will hit that target (and possibly go as high as the second target (1179). This implies that I believe Soybeans is likely to rally at least 5% in the near future, and possibly rally as much as 10% from current price levels.
-I will be aggressive with taking profits on any short setups that present, due to the bullish weekly divergence that has triggered.
-Utilizing the Weekly MAC & Valuation methods, I note that this market is in an area where we can look for H6/Daily short trades. As mentioned in previous paragraph, I will utilize more aggressive targets.
-The cycles for Soybeans...wow, they are quite something. Decennial cycle suggests significant low being put in, APZ's suggest major low around October 4th, major 5 year cyclical low RIGHT NOW. Other temporary and permanent blended cycles suggest a major low right now. Composite of the 3 most similar years of price action also suggest a major low could happen soon, with a major rally to March 2025.
-A combination of the cycles and the major timeframe bullish divergences have me leaning somewhat towards calling a possible major bottom in the Soybeans market. I would prefer to see commercials COT positioning support this idea, which makes me think maybe we get another nice selloff into the August lows before the real bottom is in. But time will tell.
META - Still Bullish, But Major Sell Signal LoomingHere is what I am watching on META.
-Like many of the other high flying stocks in the US, the Quarterly, Monthly & Weekly charts are flashing divergence sell setups. Bulls need not be too worried yet, as these divergence sell setups have not yet confirmed. However, the astute trader must be aware that these setups are looming, because if they confirm, they imply a minimum 15% move to the downside for Meta.
-We are bullish on any pullbacks into the 446 to 495 range (Monthly & Weekly MAC lows). These are considered Buying opportunities and valid areas to look for entry triggers on entry timeframes.
-Cycles suggest a cyclical high right around now, heading into a significant cyclical low in early to mid October (possibly into November). I'd like to see this cycle play out to have price trade down into the Monthly/Weekly MAC lows, where we will be ready to hunt entry triggers to the long side.
Amazon - Buying Pullbacks & Cyclical High Expected SoonHere is what I am watching on Amazon.
-We need to be aware that there is bearish divergence setting up on the quarterly, monthly & weekly charts. HOWEVER, this divergence is not yet confirmed, and is therefore not actionable trade intel at the present moment. We need to monitor these divergences, because if they confirm, they imply significant price moves in Amazon share price.
-MAC strategy for the Quarterly, Monthly & Weekly charts remain bullish. Any pullbacks into the bottom of the MAC are BUY opportunities. I do not blindly buy the bottom of the channels, but utilize lower timeframe entry techniques at these levels to trigger into a position. We are still BULLISH Amazon.
-Cycles suggest that Amazon could put in a cyclical high any time between now and October 10th, before putting in a major cyclical low at the end of October. I would like to see this play out to provide us with nice buy opportunities at the bottom of the MAC's.
Google - Looking For Sell Triggers Around 171This video provides an overview of the things that I am watching for Google right now.
-We need to monitor the quarterly, monthly & weekly divergences that are currently setup, but not yet confirmed. These are not actionable right now, but they definitely need our attention. If confirmed, they imply some very significant moves in this market.
-We can see that the Monthly is still bullish, and we had a monthly MAC entry confirm on the Daily on September 13th. This trade still has not hit its targets, with the first being 169.69 (what a great number). The second target being 180. I would not be surprised to see Google trade up to 169.69 sometime soon.
-The Weekly chart is confirmed bearish for the MAC strategy. What this means is that any rallies into the weekly MAC high are opportunities to sell on the H6 chart. I'll be looking for sell triggers if price trades into the 171 level (Weekly MAC high).
-Threw in some cycles, for fun.
Have a great week.
NVDA - Still Bullish, But Major Potential Sell Signal LoomingThis week in NVDA I am paying attention to the following:
-On the monthly timeframe, we see that there is a significant bearish divergence setup forming. This has not yet triggered, though, so the bulls can relax (for now). However, in 7 days when the Monthly candle closes, we need to pay close attention to the CCI divergence. If it confirms, it implies a MAJOR bearish correction for NVDA is on the horizon.
-But in the meantime, everything is all systems go for the bulls. If you trade based on the Monthly, any pullbacks into the $88 region (Monthly MAC low) would be satisfactory spots to look for Buy triggers on the Daily timeframe. The Williams Acc/Dis is positioned well above its 57 period MA, which means we should look to buy any pullbacks into the low of the MAC.
-Weekly analysis also implies all is good for the bulls. I will look for Buy triggers on the 6H chart if price pulls back into the $107 region (Weekly MAC low).
-For fun, I throw some cyclical analysis into the mix. We see that NVDA has a strong seasonal cycle for an upmove from early October into November.
Thank you for reading. Enjoy your week.
Apple - High & Intermediate Term AnalysisToday, we look at Apple utilizing a variety of techniques: Divergence, MAC & Cycles.
We need to keep an eye on the quarterly, monthly & weekly bearish divergences that are occurring. They have not yet triggered, so bulls don't have to worry (yet). But we must keep our eyes on these divergences, because if they trigger, they imply significant downside ahead for Apples share value.
We take a look at the MAC and see that there is a case to be made for some further upside this week, and based on todays state of the indicators, longs are favored on any pullbacks to the MAC on the Daily chart.
Cycles show a bit of a mixed bag of possibilities. I'm most interested in the Decennial pattern and the APZ's.
Let me know if you have any questions.
JPM - 10% to 20% Dip IncomingDISCLAIMER: This is not trade advice. This is for educational & entertainment purposes only to demonstrate how I am looking to be involved with this market. Trading involves significant risk, do your own due diligence.
A concerning sign for JPM bulls triggered today. We saw the DPO & CCI divergence confirmed. Price targets to the downside of this confirmation imply a 10% to 20% dip is coming for JPM.
See you down there.
20% to 40% Dip Coming for Microsoft?DISCLAIMER: This is not trade advice. This is for educational & entertainment purposes only to demonstrate how I am looking to be involved with this market. Trading involves significant risk, do your own due diligence.
A concerning sign for Microsoft bulls triggered a few weeks ago. We saw the DPO divergence confirmed. Price targets to the downside of this confirmation imply a 20% to 40% dip is coming for Microsoft.
Do you think Microsoft is heading for a dump?
I do.
See you down there.
EURUSD - Technical Analysis [Short Setup]🔹 EURUSD Analysis on 1HR chart
- The current Trend is BULLISH
- there is Bearish divergences
-Rising Wedge reversal pattern is form
🔹 Trade Plan
- Entry Level = 0.67295
- Stop Loss = 1.11500
- TP1 = 1.11030
- TP2 = 1.10790
🔹 Risk Management
- First TP is 1:1
- Second TP is 1:2
🔹 How to Take Trade?
- Only risk 2% of your portfolio
- Take 1% risk entry with 1:1 RR
- Take 1% risk entry with 1:2 RR
Like and subscribe to never miss a new idea! ✌🏼
AUDCHF IS GOING LONG, TAKE PROFIT IS AT LEAST 100 PIPS AWAYSo here are the reasons for my Bullish Bias
- Weekly Bullish Divergence Confirmed
- Price rejected off level that was last touched in March 2020, the rejection candle on the weekly was 200 pips
- Head and Shoulders Divergence spotted on the Daily, this particular Divergence is almost undefeated in terms of directional bias
- Market structure has been broken to the upside on the Daily.
I see price going to at least 58.800.
AUDNZD is ready to go LONGSo AUDNZD is definitely long for several reasons.
- Daily Bullish Divergence is clear
- Bullish Divergence Structure is broken to the upside
- Monthly Bullish Divergence is confirmed
- Price retraced to the Daily 200 EMA
- Daily Doji showed up on August 5
- Price formed Divergent resistance on the daily 61.8
- All AUD pairs are pushing up.
#AUDNZD bearish move possibilityAs can be seen in the chart, we have bearish divergence in the 4H and daily timeframes, suggesting that the price might have reached the end of its bullish move.
Furthermore, in the 1H timeframe, the price has managed to shift market structure towards bearish by breaking below the previous higher low. Now, the price seems to be completing a pullback to the broken short-term trendline and previous support zone, which now act as resistance.
Let me know if you would like me to publish an analysis in a lower timeframe on this chart to take advantage of this rally.