Divergence Cheat Sheet / Types of DivergenceWhat is divergence?
Divergence is a method used in technical analysis when the direction of a technical indicator, usually some form of oscillator ‘diverges’ from the overall price trend. In other words, the indicator starts moving in the opposite direction to the price and the trading oscillator signals a possible trend reversal.
Once divergence appears, there is a higher chance of a reversal, especially if divergence appears on a higher time frame.
Oscillator indicator for divergence patterns is Weis Wave Volume, macd, the RSI, CCI, or stochastic OBV.
Types of divergences
There are 4 types of divergence, which are broadly classified into two categories:
1) Regular or Classic Divergence
2) Hidden Divergence
With each of these two categories, you have a bullish or a bearish divergence. Therefore, the four types of divergences are summarized as:
1) Regular Bullish Divergence
2) Regular Bearish Divergence
3) Hidden Bullish Divergence
4) Hidden Bearish Divergence
Divergence patterns indicate that a reversal is coming soon and becoming more likely but this is not an instant change. The more divergence there is visible, the more likely a reversal does become. Here are some guidelines:
The entry can not be taken on the basis of divergence indicator alone.
It’s best if a trader mixes the divergence indicator pattern with their strategy.
Use Higher time Frames.
