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How To Trade Regular & Hidden Divergences | Divergence Trading Explained For Beginners - YouTube
Channel: The Secret Mindset
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hello guys here is one of the most
important lessons about training if you
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want to become a successful trader or
investor then you must learn how to spot
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and trade a divergence like a pro
divergences should be one of your most
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important tools because they signal
momentum coming into the main trend or
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indicate a possible reversal when the
trend is nearly over you don't even have
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to learn all the concepts about trading
if you master the divergences with basic
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price action and support and resistance
levels you can easily trade stocks Forex
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or any other instruments you prefer so
by the end of this video you'll learn
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the power of divergences you'll learn
how to spot them easily and you'll also
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discover the best indicators you must
use to trade divergences before we
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continue if you are new to the channel
and you find value or you'll learn
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something new please consider
subscribing and leave us a like to show
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your support so what is the divergence
almost all technical indicators track
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the evolution of price movement meaning
that they like price that's why most of
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the oscillators using technical analysis
are lagging indicators when the price of
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a stock moves upward the indicator also
moves upward when the price moves
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downward the indicator also moves
downward but sometimes however a visual
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discrepancy is seen between the price in
the indicator this visual discrepancy is
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known as a non confirmation and is
called a divergence there are two types
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of divergences
regular divergences and hidden
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divergences a regular divergence is
characterized by higher high prices but
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a lower indicator values during an
uptrend and lower low prices followed by
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higher indicator values during a
downtrend irregular divergence is
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considered a leading indicator because
it can identify with good accuracy tops
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and bottoms it also helps traders to
sell near the top and why near the
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bottom in
words a classic divergence signals a
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possible trend reversal irregular
divergence has two patterns first is the
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regular bearish divergence a regular
bearish divergence appears during an
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uptrend when the price is making higher
highs but the indicator indicates a
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lower high as you can observe in this
chart the price was in a strong bullish
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trend with a price pushing for new highs
however the indicator failed to record
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new highs on a contrary recording a
lower high that's a strong indication of
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market exhaustion and a possible sign of
market reversal or at least a short-term
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collection and second we have regular
bullish divergence a regular bullish
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divergence appears during a downtrend
when the price is making lower lows but
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the oscillator records higher loss again
when we analyze this chart we see that a
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price plunged quite aggressively with
the price seeking for new lows this move
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was not confirmed by the indicator which
failed to record new lows on a contrary
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recording higher loss thus the regular
bullish divergence suggests a possible
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market reversal for a short term
collection besides regular divergences
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we also have hidden divergences a hidden
divergence is a visual non-confirmation
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characterized by higher lows of the
price but lower indicator values during
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an uptrend and lower highs of the price
and higher indicator values during a
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downtrend hidden divergences signal
continuation moves in the direction of
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the prevailing trend so that's the main
difference between the regular
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divergences and the hidden ones the
regular divergences indicate reversals
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while hidden divergences indicate
continuation so remember this important
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rule
a hidden divergence has two patterns
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first we have the bullish shootin
divergence in a bullish hidden
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divergence the oscillator makes lower
lows but the price makes either a higher
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low or a double bottom low this type of
pattern occurs mainly during upward
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collections let's take a look at this
example the price was in a very strong
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upward trend and recorded an important
collection the price resumed its initial
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upward direction they recorded another
pullback and you can observe the price
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failed to record new lows and closed
higher than the previous downward swing
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however if we look at the oscillator in
recorded a lower low thus forming a
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hidden divergence and signaling that a
possible upward movement is on a cards
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then we have the bearish hidden
divergence in a bearish hidden
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divergence the oscillator makes higher
highs what the price makes either lower
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highs or double bottom hires this type
of pattern appears mainly during
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downtrend corrections in this example
after a strong uptrend the recent price
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action indicated a downward momentum
with the price making lower highs
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despite the fact that the price was
making lower highs the oscillator
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recorded higher highs thus forming
hidden divergence now let's see the best
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indicators you could use to identify
divergences the relative strength index
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is a powerful indicator and one of the
most reliable oscillators when used
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correctly a great use of the relative
strength index is to search for
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divergences between the RSI and the
price of the stock let's use the Tesla
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stock as an example with the errors I
added on the chart and let's see what we
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find here is a regular divergence
and here is a hidden divergence another
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great indicator for divergence trading
is the CCI the commodity channel index
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is an oscillator used in technical
analysis in order to measure the
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variation of a stock's price from a
statistical mean there are two main
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methods used by traders to interpret the
commodity channel index looking for
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divergences and as an overbought or
oversold indicator let's analyze this
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Amazon chart in this area we have a
regular divergence and here is that
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hidden divergence if you want to learn
more about the CCI
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go watch an in-depth video about this
indicator here another useful tool for
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spotting divergences is the obv the
unbalanced volume is a momentum
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indicator that relates volume to price
change the obv shows if the market
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volume is flowing into or out of a
security or stock divergences occur when
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the price movement is not confirmed by
the obv I use the obv mainly for regular
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divergences in this example we have the
market making higher highs and higher
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lows but gob be signaling the end of the
trend also probably my favorite
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indicator for identifying divergences
the stochastic the stochastic oscillator
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is a momentum indicator excellent at
pinpointing divergences on this chart we
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have a regular divergence here and a
hidden divergence here
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I also use the money flow index for
spotting divergences this indicator
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measures the strength of money flowing
in and out of a security or a stock the
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money flow index is related to the
relative strength index but with a twist
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while the RSI only incorporates price
the money flow also incorporates the
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volume the money flow index is great at
spotting divergences because it also has
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a big advantage it incorporates the
volume in this example we have a clear
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irregular divergence in the hidden
divergence here another good indicator
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for divergence trading is the awesome
oscillator the awesome oscillator
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compares the recent momentum with a
momentum over a wider upper frame of
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reference the indicator is plotted as a
histogram and is used to confirm the
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trends and determine possible cycle
turning points if you want to learn more
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about the awesome oscillator here is a
great tutorial on how to trade with it
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also the momentum indicator can also
generate decent divergence signals here
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we have a regular divergence signaling
the end of the trend and here we have a
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hidden divergence indicating a
continuation of the trend and of course
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finally the MACD probably the most used
indicator for spotting divergences by
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traders not by me personally in my
opinion the MACD is one of the worst
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indicators but you can find some
divergence signals with it the regular
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ones in particular like the obvious
signal on this chart now here is an
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important tip divergences are more
reliable when you are using higher
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timeframes a signal that is produced on
the 4-hour chart or on the daily chart
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is more reliable than a signal produced
on the 15-minute chart
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where the vergence is more reliable on
higher time frames because the market
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doesn't move as fast and is easier to
define trends you'll see the pattern
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developing and you'll have time to make
the correct decisions so if you learn
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something new and found value please
consider subscribing to our channel
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share and like this video as it will
help us a lot in the future until next
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time
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