Weekly E-mails:  Crypto Trading Strategy 5 Weeks of Onboarding Reads. Latest Airdrops (Thu 7 AM EST). Or all of it.

Dismiss   Pick Your Preference
This site uses cookies (More).

 

Technical Analysis: Divergences (With a Divergence Cheat Sheet) - #CryptoTrading

Divergence is a disagreement between price and an oscillating indicator such as MACD or RSI. It is not strong enough an indicator to enter a position, but it gives an idea of the state of the market.
Trading Strategy  .  Published  · By tradingfanbois

What are divergences in trading?

When traders talk about divergences, or divs, they are pointing out a disagreement between the price action and a technical indicator. The thing to look for in the price development are highs and lows, pick a pair of prominent ones and check if your indicator rendered the opposite thing: price made higher high, look for lower high in the indicator for that timespan.

The indicator of choice is typically some kind of oscillator (RSI, MACD).

These divergences signify prevailing momentum in the market. Depending on the type of the divergence they suggest either continuation or reversal.

Divergences in short

We distinguish regular divergence, hidden divergence and exaggerated divergence.

Regular Divergence is a sign of trend reversal. Price keeps the trend but indicator already shows the reversal.

  • Signal to short = regular divergence in tops. Price makes higher high but oscillator makes lower high. Underlying weakness, possible exhaustion at the end of a bull trend.
  • Signal to long = regular divergence in bottoms. Price makes lower low but oscillator makes higher low. Underlying strength, possible bottoming in progress.

Hidden Divergence is a divergence that follows the trend. Hidden divs show the market is inclined to continue the current trend.

  • Signal to short = hidden divergence in tops. Price makes lower highs but oscillator makes higher highs. Tends to be found on lower highs in a downtrend.
  • Signal to long = hidden divergence in bottoms. Price makes higher low but oscillator makes lower low. Tends to be found during continuation pauses in an uptrend.

Exaggerated Divergence is only different in that price makes double top or double bottom rather than new high or new low.

Divergences only show a level where to wait for entry signal

The logic behind divergences is that sometimes the indicators shows hidden tendencies of the market (strength or weakness) that might not be visible from the price action yet.

However, this is not a sharp enough indication to signal the actual entry. It gives the idea about the direction you should be looking for when looking for an entry on that timeframe but you will need to dig deeper and switch to shorter timeframes to find a plausible place for your entry.

Examples of MACD divergence, RSI divergence and %bb divergence

Price vs MACD Divergence, standard settings

This is a regular bullish divergence on an old ETHUSD chart.

Price vs StochRSI Divergence

This is a 1D chart of BTCUSD, Bitfinex. The StochRSI shows hidden bearish divergence, the momentum is set to continue the bearish trend.

Price vs %b Divergence, BBands 21 periods - stdev 3

Divergence with %b is a more precise way to observe whether new extremes of the price action are closer to or farther from the bollinger band’s boundaries. There is a more reliable version of the double bottom formation on the bbands: price makes a new low but that now is not a new low relatively to the bbands. That is to say, the first low is below the lower bband and the second low is a lower low in absolute terms (the price) but also either on or above the lower bband - video on bbands explaining that in this article.

TradingView provides the %b indicator which measures how far is the price from the bollinger band of your selected standard deviation and it plots this distance. The situation where you have new low in price but not a new low relatively to the bands shows as a regular bullish divergence on %b.

This is a 2H chart of BTCUSD, Bitfinex - the same period as the previous one on 1D. Having bearish divergences on a longer timeframe and a bullish divergence on a shorter one shows a short recovery might be in the cards but the bulls aren’t winning yet.

Divergences Cheat Sheets

Crypto Divergences Explained by Josh Olszewicz

Josh Olszewicz did a Youtube series called Better know an indicator which included a good video on divergences. Other videos from the same series included the intro to Ichimoku cloud for crypto traders.


Resources To Learn More About Price/Oscillator Divergences

  • ”dukascopy.com / Do you know everything about divergences?”

Divs on dukascopy.com

  • ”babypips.com / Trading Divergences”

Trading Divergences

About the author

Written by tradingfanbois

JMT under the Twitter handle @tradingfanbois has been deep in bitcoin markets since late 2014. It is the person who takes care of our office. Also answering your Quora questions regarding Bitcoin, cryptocurrencies and technical analysis.

 

Last added to Crypto Airdrops, Bounties & Opportunities
Name Date How to access Official URL Additional Info
Cloudbet Turbo Thursday Reload Bonus Every Thursday between 05:00-23:59 UTC Make a deposit of 0.1 mBTC or more today, Cloudbet gives you a 100% Reload Bonus of up to 50 mBTC/1 BCH. Remember you must activate the bonus in your player dashboard before making a deposit for the bonus to be credited! The bonus is only available for the Casino, not the Sportsbook. details make acct
POOL-X exchange listing promo Daily until listing POL has a random twitter draw of users who post a POOL-X graphic design every day until their token listing on the KuCoin exchange. You need to sign up via Google form and have a KuCoin account. form make acct
Verasity New Triviata Competition November 5 at 00:00 UTC - November 20th 00:00 UTC Verasity is a token-based platform for the attention economy. They always engaged a lot with the community and organized several airdrop and competition campaigns so far. The current two-week campaign relates to the Triviata app (iOS/Android). Sign up and enable your game participation in the app profile, and you get the chance of winning prizes with 4000 USD in total. Even if you don't win though, participating will earn you tokens that can be staked in the official wallet for over 30% yearly earnings. join about
Bethereum Price Pool on VK November 2019 There are regular competitions with the total pool of prizes worth 40K Bether if you join the gaming platform's VK channel. details make acct
Brave New Coin Challenge Until the end of the year The crypto market data provider is giving away small amount of their tokens if you add people to their telegram group. register telegram
FanEspo Big Competition (ERC20) All the time Fanespo is launching a new promotion contest worth $500 in FAN tokens. Details will pop up on you when you sign up on site. Overall, the eSports platform FanEspo is giving away the total of $1.6 million of tokens in contests. You need to have a FanEspo account. details make acct
Atomars Opportunity Launch promo There is a new altcoin axchange launched that now offers zero-fee trading, and possibly thinner markets for the market makers around. details make acct
Keybase Stellar Lumens Drop 11 September 2019 & Onwards The Keybase team announced a surprise airdrop worth 21 USD in XLM to all account holders who ever installed the Keybase app. To get the Lumens, you need to sign in again and claim them - you should have received a bot message with instructions. Keybase has been funded by the Stellar Developer Foundation for years and so this collab is not a one-off. You can choose to keep participating in the Lumens airdrop by using Keybase, the total dollar worth each user can get is 500 USD. New accounts can still participate as long as they have a Github or HackerNews account created before 9 September 2019. more join
BlockWage Airdrops + Bounties Recurring Platform for freelancers marketplace. Airdrops randomly announced via Discord, there's also the possibility of Masternodes. join web
Vaultoro Token Launch Promo September 2019 The crypto-gold exchange Vaultoro has been around for years, getting attention in the 2015 bear market and tagging along through the subsequent bull run. They are now launching their own exchange token which you can get for free if you don't have an account yet. Every new sign up with basic ID verification gets 200 VAULT tokens. homepage make acct