Hidden Bullish and Bitcoin Hidden Bearish Divergence Bitcoin Trading
Hidden divergence is used as a possible sign for a trend continuation after the price has retraced. It's a trading signal that the original trend is resuming. This is best setup to trade because it is in same direction as that of the continuing market trend.
Bitcoin Hidden Bullish Divergence
This setup happens when price is making a higher low (HL), but the oscillator (indicator) is showing a lower low (LL). To remember them easily think of them as W-shapes on Chart patterns. It occurs when there is a retracement in an upwards Bitcoin trend.
The example illustrated below shows an image of this bitcoin setup, from the image the price made a higher low (HL) but the technical indicator made a lower low (LL), this shows that there was a diverging signal between the price and indicator. This signal shows that soon the btcusd market up trend is going to resume. In other words it shows this was just a retracement in an upward trend.
This confirms that a retracement move is complete and indicates underlying strength of an upward trend.
BTCUSD Hidden Bearish Divergence
This setup happens when price is making 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 bitcoin setup, from the image the price made lower high (LH) but the indicator made a higher high (HH), this shows that there was a divergence between the price & the indicator. This shows that soon the btcusd trading market down trend is going to resume. In other words it shows this was just a retracement in a downward trend.
This confirms that a retracement move is complete & indicates underlying strength of a downward trend.
Other popular indicators used are CCI indicator (Commodity Channel Index), Stochastic Oscillator, RSI and MACD. MACD & RSI are the best indicators.
NB: Hidden divergence is the best type to trade because it gives a signal that is in the same direction with the current market trend, thus it has a high reward to risk ratio. It provides for the best possible entry.
However, a trader should combine this trading setup with another indicator like the stochastic oscillator or moving average and buy when bitcoin is oversold, and sell when bitcoin is overbought.
Combining Hidden Divergence with Moving Average Crossover Method
A good indicator to combine these bitcoin trading set ups is the moving average indicator using the moving average crossover method. This will create a good trading strategy.
Moving Average Crossover Method
In this strategy, once the signal is given, a trader will then wait for the moving average cross-over method to give a buy/sell cryptocurrency signal in the same direction, if there's a bullish divergence setup between the price and indicator, wait for the moving average crossover system to give an upward cross-over signal, while for a bearish diverging setup wait for the moving average crossover system to give a downward bearish crossover signal.
By combining this signal with other technical indicators this way one will avoid whip-saws when it comes to trading this signal.
Combining with Bitcoin Fibo Retracement Levels
For this example we shall use an upward market trend. We shall use the MACD indicator.
Because the hidden divergence is just a retracement in an upward trend we can combine this cryptocurrency signal with the most popular retracement tool that is the Fibonacci retracement levels. The example illustrated below shows that when this set up appeared on trading chart, price had just hit the 38.2% level. When price tested this level, this would have been a good level to set a buy order.
Combining with Bitcoin Fibo Expansion Levels
In the trading example above once the buy bitcoin trade was placed, a trader would then need to calculate where to set the take profit for this trade. To do this a trader would need to use the Bitcoin Fibonacci Expansion Levels.
The Fibo expansion was drawn as shown on the btcusd chart as illustrated & shown below.
For this example there were three take profit areas:
Expansion Level 61.80% - 131 pips profit
Expansion Level 100.00% - 212 pips profit
Expansion Level 161.80% - 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.
