I got emailed this great report on divergence and hidden divergence. I did not write this and I don’t know the people who sent it to me very well but it is a very good article and it will help anyone who reads it to add another took in there trading toolbox 
DivergenceA.pdf (1.14 MB)
exactly the reason my little “macd + ma divergence indicator” exists and used with only a few other indicators — because it works !
LOL
nice find, btw !
mp
Thank you for that.
exactly the reason my little “macd + ma divergence indicator” exists and used with only a few other indicators — because it works !
LOL
nice find, btw !
mp
ive always liked divergence but I never fully understood it. I want to see how I can incorporate this into my trading stratagy.
and triple O your welcome 
DIVERGENCE is easily explained and is what leads to so many divorces in the world !
LOL
mp
Johnny
Thanks for that…!!!
Divergence and Convergence (Hidden) ???
I can't remember all the different names for the VERGENCES. So I just do what I do... Babypips has a very good section on this with great pictures you can print off and have in front of you while you trade... I just know that Divergence is the disagreement of the price action to a price oscillator indicator I use the Slow Stochastic Settings 8,3,3 0r 8,3 . On the 15 Min time frame charts..
The way I see it is that price and the Stochastic get out of sync and have to try and get back together… I place trades based on where the price is on my Stochastic… I have a couple of charts I attached from Friday… So lets go through some trades…
On the GBP 15 Min. I am showing 4 possible trades let's go through each. The No.1 trade the price made a Higher High but stochastic Is making a Lower High. The Stochastic is Above the over sold line at 80. So I would be looking for a Short here. Once the Stochastic starts to turn and Cross it is confirmed divergence and we short. Good for a 100 pips..
No. 2 We have 3 trades here. The first lines indicated with green arrows. The first is the purple arrow, This trade would work if you were just confirming a long with this . The stochastic turned but didn't cross.. and went 30,40 pips then came back down.. The yellow arrows show the second trade where Stochastic turned then crossed good for over 60 pips..
The third and best trade is the last came down below the other 2 . But the divergence setup was further time ( longer). Stochastic turned up and crossed and went up over 100 pips.
So what do we now know about divergence's.. The longer time frame it is spread over the stronger or better the trade.. ( just like everything else we look at Bigger chart times better information).
If the Indicator is above the Midpoint Look for shorts if below look for longs..
If The indicator is turning and then crosses stronger trade. But just turned can workout also.
Also when you are checking for Divergence on your charts use your cross hairs as sometimes it can make a difference just a candle or two..
If you use this with your other tools it is a great confirming tool. But Divergence is also a very powerful trading strategy in its own right and can and is used be itself.. Again this is my take on this and how I see it and it's use.
The EUR chart is also from Friday 15 minute.. And shows possibility of 3 trades..
Good Trading To All Ken Lee :)
DIVERGENCE is one of my favs, next to the LRC of course, but one must keep in mind that divergence is a “prophetic” indicator – it is indicating “future” movement, BUT not always WHEN that movement happens !
the way i use it is to watch as it forms in whatever trade i might be in. Let us say im LONG and have set my tp point based on resistance points.
when the price is hit, invariably on ANY timeframe, there will be a retrace BUT the DIVERGENCE that i have seen forming tells me two things. FIRST, the retrace should not be a SMALL one (say to ONLY the 23% fib) and it tells me that the price will NOT continue UP.
PRE-ARMED with this information, i can then decide on WHATEVER strategy i wish to employ here, which would normally be to sell the LONG position and wait for the confirmation of the downside move and enter SHORT, as was stated by Ken.
The ONLY difference is that i will wait for a definite confirmation of the reversal by placing a tp at the 23 fib AND THEN WATCHING to see if the SHORT continues (you can also place a “sell stop” below the 23 fib to be hit automatically when the price continues down but will NOT be hit (hopefully) if the price now reverses and goes LONG again.
[B]the reason for using the 23 fib (or any support in that area) is that almost all retraces will move to that point, while “SOME” will definitely continue down — taking profit at the 23 assures you of not getting caught if the market SUDDENLY decides to do a unplanned and unthought of reversal back to the upside. And once you can see that the move will continue down, as they “most” often do, then you reenter the trade and prepare for a good ride ![/B]
BE VERY CAREFUL with divergence in a very active market, because divergence is definitely telling you a good story, BUT it doesnt always tell you when that story will be read !
Given your basic “average” situation, DIVERGENCE is a powerful tool indeed and the reason why i designed a small indicator that handles that “prophetic” nature and includes a couple of ma x-overs to help get one kick started in the proper direction.
anyway, Ken is correct in the value of this tool but one must also be careful of when and where it is used, especially lately.
enjoy and trade well
mp
[I][B][I]Within the great hall at Elfinore stands a wondrous coffer, precisely four cubits square and securely latched against the outside world. Inside that repository, shut away from impertinent eyes, abides many an intriquing trading secret garnered from around the world and over the ages !
As a child, i used to watch from the darkness as the secrets were debated and annotated by the elders. No one there held a single thought of my presence – BUT I KNOW WHERE THEY HID THE KEY !!
[/I][/B][/I]
mp6140
Most insightful and helpful…!!
dave
Hidden divergence is one of the most powerful chart patterns there is, i suggest you learn as much about it, recognising the patterns till it comes as second nature just by a glimpse of the chart.
thaks kenneth and MP i appreciate the insight about divergence. Im glad that pdf was helpful to you guys.
some wicked diergence setting up on the gbp/jpy hour chart…i’m bullish for now though…
By travpip at 2009-02-09
Very useful. Thanks
Divergence is a good tool to use when combined with other forms of analysis.
However, what is not explained is the negative impact of extended divergence. It may seem so easy at first sight to enter a trade based upon a divergence signal, but divergence does not always mean that price is going to turn ‘now’. Extended divergence is when the trend continues and divergence also continues to provide you with entry signals. Obviously, taking each of these signals would result in a heavy loss untill you finally caught the turning point.
I personally like to use divergence as added confirmation that my trade is already placed in the correct direction, as apposed to using divergence to place the trade in the first instance.
Reversal divergence is very clear to me but the hidden divergence i just currently dont get it hopefully i can understand very well soon.
There is an attached pdf about the detailed divergences so you can down load them and read for learning both types of divergences.
Really, Divergence is very important trading system! I see, for swing trading it provides good signal! Because, high time frames are much stable than short time frames like H1, M30 and below! This is way, I use this useful trading tool in my live chart although I am a price action trader! No doubt, now I can filter my entry points more accurately!
Hello Sirs/Ms/Mdm,
I gone thru the divergence topics in bbpips about 2 weeks ago and all the while I was, sorry to say, seriously confused about the first spot to draw down the lines of the divergences.
You see, to me a newbie, the Regular Bullish Reversal Divergence (price LL, oscillator HL) has the same pattern as the Hidden Bearish Continuation Divergence (price LH, oscillator HH). Then… ???
The same goes to the Regular Bearish Reversal Divergence (price HH, oscillator LH) and the Hidden Bullish Continuation (price HL, oscillator LL). OMG, now which is which ?
My problem here is: where shall I draw the 1st spot of lines ? Lead by price action (Tops/Bottoms) first ? or go first with oscillator (Tops/Bottoms)?
I supposed once the first line is determined, the second line would be easier, right?
Can someone please help me to clarify my doubts?
Thanking you in advance.
Sincerely,
