what should we do if there is both the hidden and regular divergences at the same time? does the trend continue or does it reverse?
Not convinced that both can occur at the same time on the same time-frame, unless you can post an illustration.
Where two charts & indicators on different time-frames disagree most traders give the longer time-frame more respect than the shorter. I’m not saying you would believe it and ignore the other, but you would put more faith in the longer.
Where you get a mix of bullish and bearish signals on a trend, that does not mean the trend will reverse because of the conflict. It might consolidate or range or pull back for a short period or it might slow down: trends more often do these things rather than reverse instantly.
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when price action is forming higher highs and higher lows but indicator (lets say MACD) is forming lower highs and lower lows there is both regular and hidden divergence. am i right?
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That’s just divergence. The theory holds that the downward tendency of the MACD puts a question mark over price continuing to move higher.
Or otherwise called negative divergence. Because the outcome for price is suspected to be more probably negative.
Positive divergence would be when the two tendencies are reversed, and MACD shows a HH and HL against price’s LH and LL.
Here’s an example:
https://www.tradingview.com/x/9EAJT581/
Divergences are indicated by the dotted yellow trend line.
1.) First we have a hidden bearish divergence which confirms the downward trend of the market by recording LH prices but HH on indicator (RSI), price continues to fall
2.) Next we have a regular bullish divergence signaled by LL prices but HL on indicator (RSI), price hits bottom and starts moving on an upward trend
3.) Next we have the appearance of both hidden bullish divergence and regular bearish divergence… we have yet to see the markets reaction because this is current
Please give us your thoughts on this example, we would appreciate any insight on the matter.
Thanks.
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I never look at divergence or anything similar so you could say I would take no notice whatsoever of either these signals.
I am just giving you an example to convince you it can occur at the same time
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I agree and am puzzled when both occur at the same time which direction should we hold bias to ?
Yes, absolutely they can happen at the same time…when this happens, i usually will just trade with the trend. For example, if we have an uptrend, and i am showing normal bearish divergence, but at the same time am showing hidden bullish, i will not short. Hidden divergence is the strongest when it is the same bias as the trend direction. So hidden bullish in an uptrend is much stronger than hidden bearish in an uptrend…or even traditional bearish