Divergence indicates where price is likely to go in the very near future on any symbol. There are basically two types:
- Regular (typically in a trend)
- Hidden (typically occurs on pullbacks or retracements or when price is trying to test a prior high or low)
Both types are considered to be momentum moves (indicating a fast move in one direction or another).
Divergence Example Video
In this video, Gail Mercer, founder of TradersHelpDesk, shows you how to easily identify both types of divergence using the Stochastics indicator. In these examples, the top Stochastics identifies the hidden divergence and the bottom Stochastics identifies regular. These can also be referred to as:
- Regular Bearish – Price will typically go down
- Regular Bullish – Price will typically go up
- Bearish Hidden – Price will typically go down
- Bullish Hidden – Price will typically go up
Ideally, as Gail shows in the video, you want to trade into a higher timeframe divergence. In this example, both the 15 and 60 indicated bullish hidden divergence — indicating price would go up.