BTCUSD Divergence Bitcoin Trading SETUPS SUMMARY
Classic Bearish - HH price, LH indicator - Indicates underlying weakness of a trend - Warning of a possible change in the trend from up to down.
Classic Bullish - LL price, HL indicator - Indicates underlying weakness of a trend - Warning of a possible change in the trend from down to up.
Hidden Bearish - LH price, HH indicator - Indicates underlying strength of a trend - Mainly found during corrective rallies in a downward trend.
Hidden Bullish - HL price, LL indicator - Indicates underlying strength of a trend - Occurs mainly during corrective declines in an upward trend.
Illustrations of the divergence terms:
M-shapes dealing with BTCUSD price highs
M-shapes
W-shapes dealing with Bitcoin price lows
W-shapes
These are shapes to look for when using these bitcoin trading setups.
One of the best indicator for this trading setup is the MACD Crypto Indicator - as a cryptocurrency signal MACD divergence is a setup to enter a trade. But as with any signal there are certain precautions that have to be observed to make this signal a set-up. Getting straight in to a trade as soon as you see this cryptocurrency setup is not the best strategy. This setup should be used in combination with another technical indicator to confirm the direction of the trend. A good system to combine with is the moving average cross-over system.
Be aware this setup on a smaller time-frame is not so significant. When divergence is seen on a 15 min chart it might or may not be very important as compared to the 4 H chart time-frame on MT4 software.
If seen on a 60 minute chart, 4H chart, or daily chart time frame, then start looking for other factors to indicate when the price may react to the divergence.
This brings us to a key point when using this cryptocurrency signal to enter a trade: on a higher time frame MACD divergence can be a fairly reliable indicator of a change in price direction. However, the big question is: WHEN? That is why getting straight in to a trade as soon as you see this setup isn't always the best strategy.
Many investors get caught out by entering the btcusd market too soon when they see MACD divergence. In many cases, price has still got some momentum to continue in the current direction. The investor who has jumped in too soon can only stare at the screen in dismay as price shoots through his stop-loss taking him out.
If you simply look for this cryptocurrency setup without any other considerations you'll not be aligning yourself with the best odds, so to increase the odds of making a successful trade you should also look at other factors, specifically other indicators.
What other factors should you consider when using this BTCUSD trading setup?
1. Support level, Resistance levels and Trading Fibonacci levels on higher Chart Time Frames
Another way to significantly increase the odds of a winning trade is to observe the higher chart time-frames before opening an order based on lower timeframes.
If you observe that the hourly, 4 hour or daily Bitcoin chart has met a major resistance, support or Fib level then the probability of a successful trade based on divergence on a lower time-frame at this point increases.
2. Reward to Risk Ratio: Bitcoin Money Management Rules
And finally, when looking for divergence, it is very important that you enter the trade correctly, so that you've a good risk/reward ratio and only open bitcoin trades which have more profit potential than what you are risking. If you understand how to enter a transaction properly, you can measure your risk/reward before you open a transaction. That way, you can only choose to open orders which offer a favorable ratio.
Finally, when used correctly & combined with other technical indicators to confirm this bitcoin trading signal, divergence setup can provide for a huge profit potential.
