Is hidden divergence really that magical? The trading opportunities for BTC and ETH are just that simple.

Want to buy the dip or escape the top but always feel confused? Let's talk about something on the technical side that is often overlooked but super practical—hidden divergence.

What is hidden divergence? Simply put, it's three sentences.

Normal Divergence: The price makes a new high, but the momentum indicators (RSI/MACD) are weakening. This is a warning signal that the trend may reverse.

Hidden Divergence: The price creates higher lows during a consolidation, while the indicator gives lower lows. This actually means: “Let's take a break and then continue to rise.” The reverse is also true—if the price has lower lows and the indicator has higher highs, then the trend may continue to fall.

Both of these things can be found in a bunch of cases on the 1-hour and 4-hour charts of BTC and ETH.

Why is hidden divergence more interesting?

Normal divergence occurs at the end of a major trend, usually indicating that a reversal is near. But hidden divergence occurs during the consolidation phase, telling you: “Don't panic, the main trend will continue”.

Take BTC in February 2021 as an example: the RSI made lower lows, but the price held higher lows. What was the result? It rose by 20% within two weeks.

The counterexample of ETH in June was even more extreme: during the downtrend, the stochastic indicator rose instead, while the price hit new lows. A typical hidden bearish divergence — and then it dropped another 20% in the next two days.

How to find it? Pick any three indicators

Using RSI: In an uptrend, find two low points. If the price of the second low point is higher, but the RSI second low point is lower—a buy signal. Conversely, in a downtrend, this indicates a sell signal.

Using MACD: Thicken the MACD line and compare the extreme points of price and the extreme points of the indicator. Price hits a high but MACD is going low? Keep watching.

Using the Random Indicator: The most intuitive. Input parameters are 15-5-5 or 14-3-3, with the same logic - look for the asymmetry of two extreme values.

Three Steps to Success: From Discovery to Profit Taking

Step 1: Confirm the direction of the major trend. In an uptrend, only look for bullish hidden divergences, and in a downtrend, only look for bearish ones. This way, the win rate can be improved by half.

Step 2: Leave some room for your stop-loss. Don't let normal fluctuations stop your losses. If you are long, set your stop-loss 50-100 dollars below the recent swing low. The opposite applies for shorts.

Step 3: The profit target should be at least twice the stop loss. For example, if the stop loss is 100 dollars, then aim for a target starting at 200 dollars. When a clear normal divergence occurs, consider taking profits.

A Few Pitfalls for Veterans to Avoid

Invisible divergence backtesting seems to win every time, but watching the market in real-time often leads to mistakes—emotions can easily deceive. Additionally, if the divergence appears too late, the trend has already moved significantly, making the entry price uncomfortable. Moreover, the charts of small coins have a lot of noise and are not very reliable; it's still safest to practice with BTC and ETH.

Summary

Hidden divergence is a continuation signal during the consolidation phase; finding it can help you reduce floating losses in the right direction. The key is to always align with the direction of the major trend, and do not look for signals in the opposite direction. Combine with MACD or RSI, and by looking at several charts, you can develop your eyesight.