The hidden divergence trading correction in Olymp Trade Divergence is often used by traders to find the best point to enter a trading position. What is it, what are the differences, and how to deal with it? We will answer these questions today in this article.
TYPES OF DIVERGENCE
When there is a difference between the price change of the underlying asset and the change of a specific oscillator, we can call it a divergence. For example, you can use stochastic oscillators, moving average convergence divergence. , Relative Strength Index or Chanel Commodity Index.
There are two different types of divergence: Regular divergence and Hidden divergence.
Prices are always changing. It sometimes creates higher highs or lower lows. If this happens on the price chart, but the indicator line does not show the same, we can say that it is a divergence. This difference between the price trend and the indicator trend indicates that the current trend is weakening and we can expect its reversal. However, it is difficult to know the exact time when this happens. Therefore, it is better to use other tools, such as trend lines or candlesticks and graphical models.
Bullish and bearish divergence
The classic divergence can be bullish (positive) or bearish (negative). There is a bullish divergence in a downtrend. The price is making lower lows, but the oscillator has not confirmed the same action. Instead, make higher lows or double or triple. The latter is less important than higher lows and is more common when using a Stochastic Oscillator or RSI. When the price is in an uptrend, there will be a bearish or negative divergence. Price changes that have not been confirmed by any changes in the indicator have produced higher highs. The oscillator can generate lower highs or double highs or triple highs.
What HIDDEN DIVERGENCE actually is?
We can say that hidden divergence occurs when the volatility forms upward or downward and the price movement is inconsistent with the classic (left) and hidden (right) divergence. Correction of current trends. The trend may continue in the previous direction, so the potential divergence is a continuation pattern. Therefore, you can use hidden divergence to follow the trend to trade. Hidden divergence is easy to identify reversals.
BEAR vs BULL divergence
There are two types of hidden divergence, such as classic divergence: one is bullish divergence, and the other is divergence. When the indicator hits a lower low and the price is not the same, a bullish trend occurs during an uptrend. This indicates that the price is in a phase of consolidation or retracement, and the trend direction will continue soon. The uptrend on the EURJPY chart may show a bearish divergence during the downtrend. Oscillator indicators made higher highs, but price movements did not. It is expected that the downward trend will continue in the near future.
Trading deviations on the Olymp Trade platform
Divergence by itself does not give a strong signal to enter a trading position. However, they provide important information about future price developments. Hidden divergence trend reversal-trend continuation. You will need to use other techniques to confirm the best entry point for the transaction. It may be just a trend line, a moving average intersection, or some kind of candlestick pattern. Combine divergence with transaction envelopes or Bollinger bands. The bearish divergence becomes more pronounced near the resistance trend line and when a bearish reversal pattern occurs during an uptrend. Bullish divergence is most pronounced near the trend support line and when a bullish reversal pattern occurs during a downtrend.
Divergence is the difference between price changes and oscillatory indicators. If one of them is rising or falling, and the other is not a divergence, there are two types of divergence: conventional divergence and hidden divergence. Regarding the possible turnaround. Hidden divergence suggests that after a brief correction or consolidation, the trend may continue. Both bets can be bullish or bearish, depending on whether they occurred during a downtrend or a bullish period. To get to the entry point, use other tools. Practice discovering the differences on your Olymp Trade free demo account. If you want to profit from a real trading account, you need to be fully prepared and confident. Have you traded divergence? Do you recognize these two types in the price chart? Tell us in the comments at the bottom of the site.
I wish you a lot of money!