How Do I Trade Bitcoin Classic Bullish Divergence and Bearish Divergence

In bitcoin crypto currency trading, classic divergence is used as a possible signal for a bitcoin trend reversal and is used by bitcoin traders when looking for an area where bitcoin price could reverse and begin going in the opposite direction. For this reason this trading setup is used as a low risk entry method and also as an accurate way of exit out of a bitcoin trade.

This strategy is a low risk technique to sell near the top or buy near the bottom, this makes the risk on your trades are very small relative to the potential reward. However, this is one method with very many whipsaws and most traders do not recommend using it.

Divergence in Trading also is used to predict the optimum point at which to exit a trade. If you already have an open trade that is already profitable, a good way to identify a profit taking level would be the point where you identify this bitcoin trade setup.

There are two types, based on the direction of the Bitcoin trend:

Classic Bullish divergence
Classic Bearish divergence

BTCUSD Classic Bullish Divergence Setup

Classic bullish divergence forms when btcusd crypto price is making lower lows ( LL ), but oscillator trading is making higher lows (HL). The example illustrated below shows picture of this bitcoin crypto currency trade setup.

Identifying Trading Classic Bullish Divergence Setups and Trade Classic Bearish Divergence Setups in Trading

Crypto Classic Bullish Divergence Setup

This examples uses MACD indicator as a Bitcoin Crypto Currency divergence indicator.

From the above example the bitcoin crypto currency price made a lower low(LL) but the trading indicator made a higher low(HL), this highlights there a divergence between the bitcoin price & indicator. The signal warns of a possible bitcoin crypto trend reversal.

Classic bullish diverging signal warns of a possible change in btcusd crypto trend from down to up. This is because even though the bitcoin market price went lower the volume of the sellers who pushed the bitcoin price lower was less as highlighted by MACD. This shows under-lying weakness of the down-ward BTCUSD Crypto trend.

Classic bearish BTCUSD Divergence Setup

Classic bearish divergence setup occurs when bitcoin price is showing a higher high ( HH ), but the oscillator is lower high (LH). The image screenshot below illustrates an example of the setup.

Bitcoin Trade Classic Bearish Divergence Bitcoin Setup - How Do You Analyze Divergence Setup?

Bitcoin Trading Classic Bearish Divergence Setup

This examples also uses MACD indicator

From the above example the btcusd crypto price made a higher high(HH) but the trading indicator made a Lower High(LH), this highlights there's a divergence between the btcusd crypto price & indicator. The signal warns of a possible btcusd crypto trend reversal.

Classic bearish diverging signal warns of a possible change in the bitcoin trend from up to down. This is because even though the bitcoin market price went higher the volume of the buyers who pushed the bitcoin price higher was less as highlighted by MACD. This indicates under-lying weakness of the upward Bitcoin trend.

In the above examples, if as a trader you had used divergence trade setup to trade you would have gotten good signals to enter or exit the trades at an optimal point. However, divergence setups just like other trading indicators, is also prone to whipsaws. That is why it's always good to confirm the diverging signals with other technical indicators such as RSI, Moving Averages and Stochastic Oscillator.

A good indicator to combine classic diverging setups is the stochastic oscillator and wait for the stochastic lines to move in direction of the divergence setup so that to confirm the signal.

Another good technical indicator to combine with is the MA trading indicator, in this trading indicator a bitcoin trader should use the Moving Average Cross-over System

Example of MA Crossover Technique Strategy Method

Strategies of MA Crossover Strategy Method - Moving Averages Bitcoin Trading Cross-over Strategy

Once the divergence setup is given, a trader will then wait for the Moving average cross-over system to give a signal in the same direction, if there is a classic bullish setup, a trader will wait for the moving average system to give an upward crossover signal, while for a bearish classic divergence signal the trader should wait for the Moving average cross over system to give a downward bearish cross over.

By combining the classic divergence signals with other technical indicators this way, a trader will be able to avoid whipsaws in trading the classic diverging signals, because the trader will wait until the btcusd trading market has actually reversed and is already heading towards this direction, hence the trader will not fall into the trap of picking market tops and bottoms.

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