Forex Strategies

Wildhog Hidden Divergence Forex Trading Strategy

March 3, 2020

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Wildhog Hidden Divergence Forex Trading Strategy

Trading divergences is probably one of the most underrated ways of trading the markets. Often you would see breakout strategies, trading off bounces of supports and resistances, momentum strategies, etc., but it is not everyday that you would hear traders talk about divergences. However, there have been many traders who have had success running a trading system that is centered on divergences. Some even claim to have around 60% to 70% win rate as they have mastered their systems. Now, in trading that is a lot. Imagine you are winning around 65% of the time and losing only about 35% of the time. That is a difference of 30% and with time, that 30% could mean huge profits.

What is a Hidden Divergence?

Before we go into the detail of what a hidden divergence is, let’s first try to understand what a divergence is.

Divergence in trading is basically a disagreement between price action and an oscillating indicator. This is done by comparing the swing highs and swing lows on the price chart with the peaks and troughs on the oscillating indicator. In a normal market condition, the movement of the peaks and troughs of an oscillating indicator would often mimic the swing highs and swing lows on the price chart. However, there are times when the swing highs and swing lows move in a different direction, while the peaks and troughs on the oscillating indicator goes another direction. This is what we call a divergence.

Hidden divergence is a form of divergence wherein the swing highs and swing lows on the price chart is still going its usual direction, while the oscillating indicator’s peak and trough is showing that another thing.

For example, the price chart could be showing that price is making a higher swing low, while the oscillating indicator could be printing a deeper trough. This would mean that price has been going up, but the oscillating indicator, based on its mathematical computations, is saying that this low is still relatively cheaper that the previous swing low. This makes hidden divergences very powerful as a trend continuation strategy.

Trading Strategy Concept

This strategy is based on the concept of hidden divergences using a custom indicator which conveniently shows divergences, the Wildhog NRP Divergence.

The Wildhog NRP Divergence indicator is an oscillating custom indicator that prints divergences both on the oscillating indicator’s window and on the price chart itself. It also prints arrows pointing the direction of the trade on the indicator’s window. It prints both regular and hidden divergences, with regular divergences being printed as solid lines and hidden divergences as broken lines.

However, we will not take all divergences that presents itself. To further filter our trades, we will be using the Gann HiLo activator bars custom indicator. This indicator shows the short-term trend based on the color of the bars printed on the price chart. We will only be taking hidden divergences which agrees with the short-term trend as indicated by the Gann HiLo activator bars.

This would mean that the short-trend is still going the same direction and we are taking a hidden divergence trade as a trend continuation trade.

We will exit the trade as soon as an opposing divergence is printed, whether it is hidden or regular.

Because of the Gann HiLo activator bars indicator being printed over the regular candlestick bars, we will be having two templates. One with the candlesticks and another with Gann Hilo activator bars.

Indicators:

Wildhog NRP Divergence
Gann HiLo activator bars

Timeframe: 15-minute, 1-hour and 4-hour charts

Currency Pair: any

Trading Session: any

Buy (Long) Setup Rules

Entry

The Wildhog NRP Divergence indicator should be showing a hidden bullish divergence indicated by sky blue broken lines below the price and below the line of the oscillating indicator, and a green arrow pointing up
The Gann HiLo activator bars should print green bars indicating that it is bullish
On the confluence of the above rules, place a buy order at the close of the candle

Stop Loss

Set the stop loss slightly below the entry candle

Exit

Close the trade if a bearish divergence occurs indicated by a deep pink line on the price chart and oscillating indicator, and a magenta arrow pointing down

Buy Trade Sample 1

Buy Trade Sample 2

Sell (Short) Setup Rules

Entry

The Wildhog NRP Divergence indicator should be showing a hidden bearish divergence indicated by pink broken lines above the price and above the line of the oscillating indicator, and a magenta arrow pointing down
The Gann HiLo activator bars should print red bars indicating that it is bearish
On the confluence of the above rules, place a sell order at the close of the candle

Stop Loss

Set the stop loss slightly above the entry candle

Exit

Close the trade if a bullish divergence occurs indicated by a sky blue line on the price chart and oscillating indicator, and a green arrow pointing up

Sell Trade Sample 1

Sell Trade Sample 2

Conclusion

Trading divergences as a focal point of a strategy is already a proven system by many professional traders. The key is to identify the correct filters and combine it with other rules that would complement it.

The Wildhog NRP Divergence indicator is also a great indicator used by many retail traders to aid them in trading divergences, both as an entry and exit strategy.

By combining the Wildhog NRP Divergence and Gann HiLo activator bars custom indicators, we get the benefit of trading hidden divergences that are great continuation trade setups and taking trades that are in agreement with the short term trend based on the Gann HiLo activator bars.

It would also be best if you could combine this with correctly identifying the trend based on price action using the swing highs and swing lows on the price chart as basis.

Trade well!!!