Ready to wrap up your divergence training? Let’s do a quick recap!
In technical analysis, divergence refers to a situation where price action moves in the opposite direction of a technical indicator.
There are two main types of divergence:
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Regular Divergence
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Hidden Divergence
Both types can appear with either a bullish or bearish bias.
Since you’ve been paying attention (and not skipping class 😏), here’s a handy Divergence Trading Cheat Sheet to help you quickly identify both regular and hidden divergences.
🔁 Regular Divergence
Regular divergence often signals a possible trend reversal.
| Bias | Price | Oscillator | What It Means | Example |
|---|---|---|---|---|
| Bullish | Lower Low (LL) | Higher Low (HL) | Shows underlying strength. Sellers may be losing control. Could indicate a shift from downtrend to uptrend. | Regular Bullish Divergence: Price (LL), Oscillator (HL) |
| Bearish | Higher High (HH) | Lower High (LH) | Suggests weakening momentum. Buyers may be running out of steam. Could lead to a move from uptrend to downtrend. | Regular Bearish Divergence: Price (HH), Oscillator (LH) |
🔒 Hidden Divergence
Hidden divergence usually suggests a possible trend continuation.
| Bias | Price | Oscillator | What It Means | Example |
|---|---|---|---|---|
| Bullish | Higher Low (HL) | Lower Low (LL) | Reveals strength during a pullback in an uptrend. Often a good time to enter or re-enter. “Buy the dips.” | Hidden Bullish Divergence: Price (HL), Oscillator (LL) |
| Bearish | Lower High (LH) | Higher High (HH) | Suggests weakness during a retracement in a downtrend. “Sell the rallies.” | Hidden Bearish Divergence: Price (LH), Oscillator (HH) |
While divergences can occur between price and various indicators, they’re most commonly used with momentum oscillators like:
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Relative Strength Index (RSI)
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Stochastic
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Commodity Channel Index (CCI)
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Williams %R
Phew! That’s a lot to keep track of.
If jotting this all down on your palm isn’t ideal (especially if you’re the sweaty-palm type like Eminem 😅), just bookmark this page so you can come back whenever you mix up those HHs, LLs, LHs, and HLs.
After all, trading based on solid analysis is way better than making wild guesses, right?