Hidden Divergence with Classic Patterns - Reversal
Title
Bullish/Bearish Hidden Divergence on Classic Patterns
Element(s)
  • RSI (8)
  • MACD (25, 41, 21)
  • Awesome Oscillator
  • Double Top/Bottom
  • Head and Shoulders

Buy signal

Bullish Hidden Divergence on a long upward trend can be detected with MACD, RSI or AO. We utilize AO to identify Bullish Hidden Divergence.

In case that a Double Bottom or Continuation Head and Shoulders Bottom is speculated to appear on a small downward trend inside that long upward trend, if the bottom of last valley, where Hidden Divergence has formed, overlaps last valley of Double Bottom or Continuation Head and Shoulders Bottom then a Buy signal is generated.

  • Entry Price: On the neckline of given Double Bottom or Continuation Head and Shoulders Bottom
  • Take Profit:
    • Double Bottom:
      1. Half of height of this pattern (H/2) over Entry Price
      2. Height of this pattern (H) over Entry Price
    • Continuation Head and Shoulders Bottom:
      1. Half of height of this pattern (H/2) over Entry Price
      2. Height of this pattern (H) over Entry Price
  • Stop Loss:
    • Double Bottom: Lower than deepest valley of this pattern
    • Continuation Head and Shoulders Bottom: Lower than last valley (right shoulder) of this pattern

Sell signal

Bearish Hidden Divergence on a long downward trend can be detected with MACD, RSI or AO. We utilize AO to identify Bearish Hidden Divergence.

In case that a Double Top or Continuation Head and Shoulders Top is speculated to appear on a small upward trend inside that long downward trend, if the top of last peak, where Bearish Hidden Divergence has formed, overlaps last peak of Double Top or Continuation Head and Shoulders Top then a Sell signal is generated.

  • Entry Price: On the neckline of given Double Top or Continuation Head and Shoulders Top
  • Take Profit:
    • Double Bottom:
      1. Half of height of this pattern (H/2) below Entry Price
      2. Height of this pattern (H) below Entry Price
    • Continuation Head and Shoulders Top:
      1. Half of height of this pattern (H/2) below Entry Price
      2. Height of this pattern (H) below Entry Price
  • Stop Loss:
    • Double Top: Over highest peak of this pattern
    • Continuation Head and Shoulders Top: Over last peak (right shoulder) of this pattern

Hidden Divergence with Classic Patterns

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