Hidden divergence or often referred to as Hidden Divergences is another form of divergence. Hidden divergence occurs when oscillator makes higher high or lower lows while price does not do it. This often tends to occur during a period of consolidation or correction in existing trends and usually indicates that there is still strength in the prevailing trend and the trend will continue. In other words, hidden divergence is more to the pattern of continuation. As with any ordinary divergence, hidden divergence can be bullish or bearish.
Hidden Bullish Divergences
Bullish Hidden Divergence or bullish hidden divergence occurs during the correction in an ascending trend when the oscillator makes a higher form while the price is not, as in the correction or consolidation phase.
This indicates that there is still a strength in the uptrend and the correction movement is just a temporary take-profit action rather than the appearance of a strong seller and therefore it seems like the correction will not last long. For then, uptrend may be expected to continue.
Hidden Bearish Divergences
Bearish Hidden Divergence or bearish bear divergence occurs during rebound in downtrend when oscilator makes lower form while price is not, as in rebound phase or consolidation.
This indicates that the seller is still in the market and the downtrend is still strong. The rebound movement is merely a temporary action of taking a seller profit rather than a strong buyer’s appearance and thus tends to be short-lived. As a result, the downtrend is more likely to continue.