Divergence is a particularly popular tool when using oscillators (such as Stochastic, RSI, MACD). It is characterized by a discrepancy in the trend's character between the price and the oscillator itself.
🐾 Classical: signal for a possible trend reversal.
Extremes of one character do not repeat each other - the price may update highs (in a bullish scenario), but according to the indicator, they decline.
📊 When classical divergence is detected, traders with open positions should be cautious.
Also, one can attempt to reverse the market - in this case, a counter-trend trade is opened with a small volume, and if the reversal is confirmed, the trader can add volume.
🐾 Hidden: signal for trend continuation after consolidation.
In the bearish scenario, the price does not update lows unlike the indicator, and in the bullish scenario, vice versa.
📊 Entering a trade should be done cautiously - the trend may continue, but not for long.
🐾 Extended:
Similar to classical, it may also indicate a trend reversal, but the price extremes are at the same level.
📊 Entering a trade in this case is safer, as the bounce from the level serves as a basis, and the divergence serves as confirmation.