Hidden Divergences

Most technical indicators mirror or confirm price movement.

When price moves up, the indicator moves up; when price moves down, the indicator moves down.

Sometimes, however, a discrepancy occurs between price and indicator movement.

This discrepancy is known as non-confirmation and can be seen most clearly on overbought or oversold indicators as well as on indicators that move above or below a zero line.

Hidden divergences are the opposite of classic divergences.

Classic divergences looks for

• Lower low prices accompanied by higher indicator values at price  bottoms.
• Higher high prices accompanied by lower indicator values at price tops. 

Hidden divergences, on the other hand, seek

•  Higher price lows accompanied by lower indicator values during up moves
• Lower price highs accompanied by higher indicator values during down moves

Most hidden divergences signal continuation moves in the direction of the prevailing trend.

Chart with Bullish Hidden Divergence Formation

 Chart with Bullish Hidden Divergence Formation

Chart with Hidden and Classic Divergences