Divergence

Regular Bullish Divergence Price makes a lower low, but the indicator makes a higher low. This suggests weakening selling momentum and a potential bullish reversal.

Regular Bearish Divergence Price makes a higher high, but the indicator makes a lower high. This suggests weakening buying momentum and a potential bearish reversal.

Hidden Divergence Signals trend continuation rather than reversal. Hidden bullish: higher low in price, lower low in indicator. Hidden bearish: lower high in price, higher high in indicator.

Step 1: Identify clear swings in price (higher highs/lows or lower highs/lows)

Step 2: Compare to the corresponding indicator readings at those same points

Step 3: Look for disagreement between price and indicator direction

Best Indicators for Divergence: - RSI (most popular) - MACD histogram - Stochastic oscillator - CCI (Commodity Channel Index)

Important Caveats: 1. Divergence shows weakness, not a guaranteed reversal 2. Wait for price confirmation before acting 3. Divergence can persist for a long time before resolving 4. Works best at support/resistance levels

Entry Strategy: Wait for a reversal candlestick pattern or price breaking a minor trendline to confirm the divergence signal.

Stop Placement: Beyond the swing high (for bearish) or swing low (for bullish) that created the divergence.