Look for divergence opportunities. These are hidden signals on charts that can allow you to cash in on trend evolutions—as long as you know how to find them…
How to detect a divergence on a chart?
On the stock market, a divergence corresponds to the fact that a technical analysis indicator goes against the price in question. For example, the indicator shows a decline, but the price continues to rise.
The divergences are generally seen on the technical indicators that are the RSI or the MACD.
There are four kinds of divergences
1. Bearish Divergences
A bearish divergence occurs when the price trend is bullish while the indicator shows the opposite. The indicator is no longer performing at new highs while prices continue to rise. We analyze this fact by a trend reversal to come.
2. Bullish Divergences
A bullish divergence occurs when the price trend is bearish while the indicator indicates the opposite. The indicator shows an increase in prices as they continue to fall. We can analyze this fact by a possible reversal of the upward trend to come.
Be careful, though! For a divergence to be validated, it must pass its neutral line or signal area on the technical indicator. For example, a bullish divergence on the RSI will have to exceed the line of 50 on the upward.
3. The Hidden Bearish Divergences
Hidden bearish divergences can be detected during a downward price trend. To highlight it, it is necessary to make a comparison of the peaks of the indicator with those of the prices.
Hidden bearish divergences occur when the indicator achieves new highs while prices achieve lower and lower highs. We conclude that the downward trend is strong.
4. The Hidden Bullish Divergences
Hidden bullish divergences can be detected during an upward price trend. To highlight it, a comparison of the indicator’s troughs with those of the prices must be made.
Hidden bullish divergences occur when the indicator achieves new lows while the lower price levels achieves new highs. We conclude that the bullish trend is strong.
This kind of indicator is present in all types of markets and is often taken into account by investors in the crypto-currency market.
Remember, a wise man is worth two !
Don’t forget, this is a decision-making tool, if this could give you a sign of a trend reversal, don’t use it as single indicator.