Divergence Trading Setups

Divergence is one of the trade set ups used by Bitcoin traders. It involves looking at a chart & one more indicator. For our examples we shall use the MACD indicator.

To spot this trading setup find two chart points at which price makes a new swing high or a new swing low but the MACD indicator doesn't, indicating a divergence between price & momentum.

To look for divergence we look for two chart points, two highs that form an M-shape on the Cryptocurrency chart or two lows that form a WShape on the Bitcoin chart. Then look for the same M-shape or W-Shape on the Bitcoin indicator you use to trade.

Example of a Crypto Divergence Trade Setup:

In the chart below we spot 2 chart points, point A & point B (swing highs). These two points form an M-shape on the price chart.

Then using MACD indicator we check highs made by the MACD, these are the highs that are directly below Chart points A & B.

We then draw one line on the Cryptocurrency chart and another line on the MACD indicator.

Cryptocurrency Divergence Trade Example on MACD Crypto Indicator

Drawing Divergence Bitcoin Trading Lines

The chart above shows an example of one of the 4 types of divergences, the one above is known as hidden bearish divergence, one of the best type to trade. Types of divergences are covered in the next lesson.

How to spot divergence

In order to spot Bitcoin diverging trading signal we look for the following:

HH=Higher High- 2 highs but the last one is higher
LH= Lower High- 2 highs but the last one is lower
HL=Higher Low- 2 lows but the last one is higher
LL= Lower Low- 2 lows but the last one is lower

First let us look at the illustrations of these trading terms:

M-shapes dealing with Bitcoin price Highs

Higher High Higher Low Divergence Crypto Trading

W Shapes dealing with BTCUSD price lows

Higher Low Lower Low Divergence Bitcoin Trading - Crypto Divergence Strategy Explained

Example of M Shapes

M shapes on Chart - BTCUSD Divergence Strategy Tutorial Explained

Examples of W Shapes

W shapes on a Chart - Crypto Divergence Strategy Example Explained

Now that you've learned the divergence trading terms that are used to explain setup. Let us look at the two types of divergences & how to trade these chart setups.

There two types are:

Classic Trading Divergence
Hidden BTCUSD Divergence

These two setups are explained on the following guides below

Bitcoin Trading Setup Guide: Learn Basics, Technical Analysis, Key Concepts and BTCUSD Strategies

Trade Bitcoin Trading