Divergence can not only signal a potential trend reversal, they can also be used as a signal that the trend continues. We need to always remember that the trend is your friend, so whenever you catch a signal that the trend is going to continue, it is great good news for us.
When the price forms a higher low (HL), but the oscillating indicator forms a lower low (LL), then there will be a hidden divergence.
This situation can be seen in the upward trend of the exchange rate. Once the exchange rate has formed a higher low, we need to determine whether the shock indicator has the same trend. If this is not the case, but a lower low is formed, then we can basically determine the formation of hidden divergence patterns.
Now, we introduce the hidden bearish divergence. When the price forms a lower high (LH), but the volatility indicator forms a higher high (HH), the formation of a hidden short divergence is declared.
You should have guessed that the hidden bearish divergence appears in the downtrend. After this pattern appears, the exchange rate will go further lower and the possibility of continuing the previous downtrend will be very high.
Okay, let’s review what we have learned so far about hidden divergences.
If you are a trend follower, then you should spend some time to describe the hidden divergence pattern.
If you do, hidden divergence can help you enter the market early in the trend. Sounds good, doesn’t it?
Now, we have already introduced the relevant contents of conventional deviation and hidden deviation.
We need to remember that regular divergences may signal a trend reversal, while hidden divergences may signal a continuing trend.
In the next lesson, we will combine practical examples to see how to conduct divergence trading.