On this example below, I wan to share about a nice trading setup using Hidden Divergence. Hidden Divergence is a good trend following strategy which give us a safer way to trade because it goes with the current trend. Hidden divergence is a continuation signal. It happens when the price makes lower high and the indicator (MACD) made a higher high. Or, the price made a higher low but the indicator shows a lower low.
Example of Bearish Hidden Divergence (SELL signal)
On the chart we see price has made a lower high but the MACD show a higher high. This conditions are known as bearish hidden divergence. But when we should open the trade?
I use one or more of the following conditions before I open SELL:
Price hit upper or middle Bollinger Bands
There is a reversal candle stick pattern
Next time I will discuss more about divergence on this blog.