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Hidden Divergence Indicator Hidden divergence indicator trading is not a commonly used method of trading in comparison to the "regular divergence" method. This particular chart setup is not very popular amongst the trading community, reason for this is that it shows up very infrequently in a price chart. A hidden divergence is called as such when there is a discrepancy between the price and an indicator used in the setup, this is normally always is a Stochastic indicator. This setup is best know for signals that confirm the continuation of an existing trend. The chart below shows a typical example of a bullish hidden divergence, this gives a perfect confirmation of a continuation of the trend, the green trend line highlights price making a higher low and the green line inside the stochastic indicator highlighting a lower low.
In this bullish setup seen in the chart above, higher lows in the price and lower lows in the Stochastic indicator signals a confirmation of an up trend. for a down trend. A "long" trade could be iniated at the moving average crossing on the far right, the parabolic SAR is also indicating "long", lower Bollinger has been spiked (oversold) followed with two "inside candles" etc. Whereby in a bearish hidden divergence setup, this would be just the opposite, lower highs in the price and higher highs in the indicator The illustration below, demonstrates the price and indicator formations of hidden divergences
Hidden divergences as opposed to regular divergences offer a much higher probability and confirmation of a trade in the direction of the trend and are considered to be highly reliable trading patterns
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