Hidden Bullish & Stock Indices Hidden Bearish Divergence Indices

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

Stock Indices Hidden Bullish Divergence

This setup occurs when price is forming a higher low (HL), but the oscillator (technical indicator) is displaying a lower low (LL). To remember them easily think of them as W-shapes on Chart patterns. It forms when there is a price retracement in an upward trend.

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

This confirms that a market price retracement move is complete and illustrates underlying strength of an upwards trend.

Indices Hidden Bearish Divergence

This setup occurs when price is forming a lower high (LH), but the oscillator is showing a higher high (HH). To remember them easily think of them as M-shapes on Chart patterns. It occurs when there is a retracement in a downward trend.

The example illustrated below shows an image of this stock indices formation, from the screenshot the price made a lower high (LH) but the technical indicator made a higher high (HH), this portrays that there was a divergence pattern between the price & the indicator. This portrays that soon the market down trend is going to resume. In other words it portrays this was just a retracement in a downward trend.

This confirms that a market price retracement move is complete & indicates underlying strength of a downwards trend.

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

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

However, one should also combine this stock indices setup with another indicator like the stochastic oscillator or moving average and buy when the stock indices instrument is oversold, and sell when the stock indices instrument is overbought.

Combining Hidden Divergence Setup with Moving Average Crossover Method

A good indicator to combine these stock indices setups is the moving average indicator using the MA cross over method. This will create a good trading strategy.

MA Crossover Technique

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

By combining this signal with other technical indicators this way a trader will avoid whip-saws when it comes to trading this signal.

Combining with Stock Indices Fib Retracement Levels

For this example we will use an upwards market trend. We shall use MACD technical indicator.

Because the hidden divergence pattern is just a retracement in an up-wardupwards trend we can combine the signal with the most popular retracement tool that's the Fibonacci retracement levels. The example illustrated below highlights that when this stock indices setup appeared on the trading chart, the price had just hit 38.20% level. When price tested this level, this would have been a good level to set a buy order.

Combining with Indices Trading Fibonacci Expansion Levels

In the example above once the buy trade was placed, one would then need to calculate where to put the take profit for this trade. To do this a trader would need to use the Indices Trading Fibonacci Expansions.

The Fibonacci expansion was drawn as illustrated & shown on the chart as shown & illustrated below.

For this example there were Three take profit levels:

Expansion Level 61.8% - 131 pips profit

Expansion Level 100.0% - 212 pips profit

Expansion Level 161.8% - 337 pips profit

From this strategy combined with Fibo would have provided a good strategy with a good amount of profit set using these take profit areas.