As I was saying in our introduction, there are two types pf divergence in the market – hidden and regular. Each of them in their turn are divided into bullish and bearish.
It is important to note here that regular divergence is noting about the reversal of the trend and hidden are saying about extension of the trend.
Here is what it all means.
Regular divergence
Regular bullish divergence usually signals about the reversal of the trend and occurs on the downtrend. When the price is hitting lower lows and the oscillator hitting higher lows – here is your bullish divergence. After hitting a second bottom, if the oscillator fails to make the next low point, it is likely that the price will rise.
Bearish is just the same, but with price hitting higher highs and oscillator showing lower highs. In its turn it occurs in the uptrend and after a divergence like that the price is likely to go down.
Hidden divergence
Hidden bullish divergence can bee seen on the uptrend. The graph is supposed to hit higher lows and the oscillator is supposed to hit lower lows for a hidden divergence to occur and the trend to continue.
Similarly, in a bearish divergence a graph is going to hit lower heights and an oscillator will display higher highs after which a downtrend will resume.
And that is as easy is that.
