Divergences not only signal a potential trend reversal; they can
also be used as a possible sign for a trend continuation. Always remember, the trend is your friend, so whenever you can get a signal that the trend
will continue, then good for you!
Hidden
bullish divergence happens when price is making a higher low (HL), but the
oscillator is showing a lower low (LL).
This can
be seen when the pair is in an uptrend. Once price makes a higher low, look and
see if the oscillator does the same. If it doesn't and makes a lower low, then
we've got some hidden divergence in our hands.
Lastly,
we've got hidden bearish divergence. This occurs when price makes a lower high
(LH), but the oscillator is making a higher high (HH). By now you've probably
guessed that this occurs in a downtrend. When you see hidden bearish
divergence, chances are that the pair will continue to shoot lower and continue
the downtrend.
Let's
recap what you've learned so far about hidden divergence.
If you're
a trend follower, then you should dedicate some time to spot some hidden
divergence.
If you do
happen to spot it, it can help you jump in the trend early.
Sounds
good, yes?
Okay, now you know about both regular and hidden divergence.
We hope you got it all down pat. Keep in mind that regular
divergences are possible signals for trend reversals while hidden
divergences signal trend continuation.
In the
next lesson we'll show you some real-world examples of when divergences existed
and how you could have traded them.
