Divergences are highly accurate trading signals. To identify a divergence you need to compare an oscillator to the chart. Oscillators are technical analysis tools that constructs high and low bands between two extreme values; Bitcoin Indicator B.
Regular Divergence
Regular divergence occurs when the oscillator makes a lower high or low while the price does the opposit. It used as a possible sign for a trend reversal. Regular divergences are highly accurate trading signals.
Bullish
The price makes lower lows while the oscillator is making higher lows. This is considered to be regular bullish divergence. This normally occurs at the end of a downtrend. Usually we can keep the position open for longer as the price forms an uptrend for a while.
The dark wave is pointing up on Indicator C so we can be pretty sure there is a trend change incoming.
If we entered this trade with only 10x leverage and exited when money flow formed a wave on the positive side we would have took nealy 40% profit.
BTCUSD / 30m timeframe
ETHUSD / 15m timeframe
Bearish
This type of divergence can be found in an uptrend. After price makes the second high and the oscillator makes a lower high you can probably expect the price to reverse and drop. Be aware because the price might bounces back after the drop.
Indicator C shows a longer term uptrend in this example as the dark wave going up, yet there is some space for a Short as the white wave is topping.
In this example we would have easily took even 100% profit with 10x leverage with TP at the first bullish dot below level -2, however there was much more potential in this trade using bigger leverage.
Hidden Divergences
Hidden divergence occurs when the oscillator makes a higher high or low while the price action does the opposit. This often tends to occur within an existing trend and usually indicates that there is still strength in the prevailing trend.
Bullish
Hidden bullish divergence happens during a correction of an uptrend when the value of an asset makes a higher low while the oscillator is still showing a lower low.
Indicator C moving sideways with smaller ‘n smaller waves forming, so the price. Time to look for an entry.
With a 10x leverage we would have took around 70% profit on this trade if we closed it when momentum wave crossed up level +1. Usually it’s safer to close the trade before the new dot on Indicator B.
ADAUSDT/ 4H timeframe
DOTUSDT/ 1H timeframe
Bearish
This occurs when price makes a lower high while the oscillator is making a higher high. You’ve probably guessed this occurs in a downtrend.
Don’t keep your position open for too long rather take profit as soon as the waves are bottoming. Especially if Indicator C moves on the negative side because there is not much space for a drop in that case.
We would have took nearly 60% profit with 15x leverage on this trade if we closed it when money flow and momentum waves were bottoming.
Magic Dots
Magic Dots are located on the top and bottom of Bitcoin Indicator B. These dots also indicate divergences but for the money flow itself. There are some other oscillators built-in to Bitcoin Indicator B which are being analyzed nonstop to find the best entries for you. These oscillators are unvisible for users because of the simplicity of the Indicator. Once all the criteria meet “Magic Dots” AKA Money Flow Divergences appear. These are usually weak signals so should be considered as some extra confirmation for your trade.
Be aware that divergences should be considered as entries only if Indicator C gives green light for a trade. Read more about the way of using Bitcoin Indicator properly in Education page.
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