Mastering divergence trading can give you the edge to catch trend reversals early or confirm trend continuations β and itβs not as complicated as it sounds.
In this guide, weβll show you how to spot and trade regular and hidden divergences effectively using real-world examples.
Letβs start with regular divergence, which often signals a trend reversal.
Take this daily USD/CHF chart as an example:
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The pair has been in a strong downtrend, confirmed by a descending trendline.
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Price action prints lower lows β but wait!
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The Stochastic oscillator forms a higher low.
This mismatch between price and momentum is a regular bullish divergence, hinting that the bearish move may be running out of steam.
π What happened next?
USD/CHF broke through the trendline, kicked off a new uptrend, and rallied over 1,000 pips in the following weeks.
Pro Tip: Look for extra confirmation β like tweezer bottoms or candlestick reversals β before pulling the trigger. Divergence plus a reversal pattern = powerful entry combo.
Now letβs explore hidden divergence, which usually points to trend continuation.
On another daily USD/CHF chart, we spot this setup:
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Price forms a lower high β consistent with a downtrend.
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But the Stochastic oscillator shows a higher high.
This is a textbook example of hidden bearish divergence, suggesting the trend may resume its downward path.
π And it did.
Price respected the trendline and dropped nearly 2,000 pips over the following weeks.
Lesson learned: Hidden divergence can offer early signals to rejoin a trend before momentum picks up again.
Trading divergence isnβt just about spotting a mismatch β itβs about recognizing momentum shifts before price catches up.
Whether youβre using RSI, MACD, or Stochastic, always confirm divergence with price action, trendlines, or candlestick formations.
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Regular Divergence = Reversal Signals
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Hidden Divergence = Trend Continuation
With practice, youβll start seeing divergence setups form naturally β giving you an edge to enter trades with lower risk and higher reward.
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