Hello everyone,

I summarized an article about divergences – what they are, the major types, how to identify them, and how to use them in conjunction with a trading strategy.

I received some messages from users asking for examples, so I decided to add some examples and additional information about divergences.

**1. Bullish Divergence**

https://preview.redd.it/l5pcdup7mu9a1.png?width=936&format=png&auto=webp&s=bc5000cba9aaaee4e1ea580f3fd3e3af70c3aa63

Price is making a lower low while the technical indicator shows higher lows. This signalizes a weakening momentum of a downtrend and a reversal to the upside can be expected to follow.

Quick Notes: watching troughs in a downtrend, the indicator moves up first

https://preview.redd.it/ag8e0e99mu9a1.png?width=1834&format=png&auto=webp&s=5265c16fc1a4f2a84448d58fa6a8b441f5680bc7

**2. Bearish Divergence**

https://preview.redd.it/ll93wr2bmu9a1.png?width=936&format=png&auto=webp&s=5adbaf5afc06cabd683c123f8bca35cd0e45b457

Price is creating higher highs while the technical indicator shows lower highs. This signalizes that momentum to the upside is weakening and a reversal to the downside can be expected to follow.

Quick Notes: watching peaks in an uptrend, the indicator moves down first

https://preview.redd.it/ro78c24cmu9a1.png?width=1834&format=png&auto=webp&s=37e4ee2069adb68e75ca1e79797f195d54d3b94a

**3. Hidden Bullish Divergence**

https://preview.redd.it/39lraoqdmu9a1.png?width=936&format=png&auto=webp&s=26014fc684ae3382f3114bc6a7754511ca616aba

Price is making higher lows while the oscillator makes lower lows. A hidden bullish divergence can signalize that uptrend will continue and can be found at the tail end of a price throwback (retracement down).

Quick Notes: watching troughs in an uptrend drawback, price moves up first

​

https://preview.redd.it/ujxibj3fmu9a1.png?width=1834&format=png&auto=webp&s=35a4e7db075537339a98e78282766679374fee18

**4. Hidden Bearish Divergence**

​

https://preview.redd.it/xv23l4xfmu9a1.png?width=936&format=png&auto=webp&s=3e8756fb725d950992cb6b2251610c4576af04d9

Price is making lower highs while the oscillator makes higher highs. A hidden bearish divergence can signalize that downtrend will continue and can be found at the tail end of a price pullback (retracement up).

Quick Notes: watching peaks in a downtrend drawback, price moves down first

​

https://preview.redd.it/on6krt3hmu9a1.png?width=1834&format=png&auto=webp&s=c8fa26445baae42437c2bfca560d8241a35c69bd

**Regular divergences = a reversal signal**

They indicate that the momentum of the trend has weakened -> an early warning of a potential change in direction.

Look for them in areas where trend can change. Strong S/R levels, long high-timeframe moving averages (e.g. Daily 200 EMA) areas etc.

**Hidden divergences = a trend continuation signal**

They indicate that the current trend is likely to continue after a pullback/throwback.

Look for them in pullbacks/throwbacks of trends but also seek strong confluence to jump into the trend!

**Validity of the Divergence**

Divergence is usually used with a momentum indicator, like RSI, Awesome oscillator, or MACD. These indicators look at current momentum, so trying to find divergence from 100+ candles ago does not have any predictive value.

However, changing the indicator’s period influences the look-back range for a valid divergence. Always use discretion when determining the validity of the divergence.

https://preview.redd.it/puyues9imu9a1.png?width=1834&format=png&auto=webp&s=f5e954096808b0035a2801d6eb6cea52914f4df1

**Conclusion**

Divergences can be an important tool for traders to add to their arsenal if they are used in a careful and strategic manner.

It is always important to use divergences in conjunction with other forms of technical or fundamental analysis.


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1 Comment

  1. Wandersportx on 4. April 2024 at 23:45

    Thanks man