Hidden Divergence Continuation

Entry Logic

• Enter long on a bullish hidden divergence, where the price makes a higher low but the MACD histogram makes a lower low.
• Confirmation is a bullish candlestick pattern on the 1-hour chart.
• Use a 1-hour timeframe for this setup.
• Entry should be above the high of the confirmation candle.
• This setup works best in a trending market.

Exit Logic

• The profit target is a new high in the uptrend.
• Scale out 50% at the previous high.
• Trail the remaining position with the 20-period EMA.
• Exit if price makes a new low.
• Exit on a confirmed bearish hidden divergence.
• Exit if the trade is not profitable within 5 days.
• Exit if the MACD line crosses below the signal line.

Stop Loss Structure

• Place a hard stop below the low of the divergence pattern.
• A soft stop is a close below the 20-period EMA.
• Maximum dollar loss is $800 per trade.
• Maximum percent loss is 1.6% of the account.
• The structural stop is below the low of the confirmation candle.

Risk Management Framework

• Risk 1% of the account per trade.
• Daily loss limit is 3% of the account.
• Weekly loss limit is 7% of the account.
• Maximum drawdown is 20%.
• Minimum risk-reward ratio is 2.5:1.

Position Sizing Model

• Use a fixed fractional sizing model.
• Adjust size based on the distance to the stop loss.
• Use 1.5x size for A+ setups.
• Do not scale into trades.
• Scale out at the previous high.

Trade Filtering

• Avoid trading this setup in a ranging market.
• Requires a clear bullish hidden divergence.
• Trade only instruments that are in a strong uptrend.
• Avoid trading this setup during low-volume hours.
• Do not trade in choppy, sideways markets.

Context Framework

• The daily chart should show a clear uptrend.
• Price should be trading above the 50-day SMA.
• The setup should occur after a pullback to a support level.
• The weekly chart should show a bullish bias.

Trade Management Rules

• Move the stop to breakeven after the first profit target is hit.
• Scale out 50% at the previous high.
• Do not add to winning trades.
• Be patient and let the trend resume.

Time Rules

• The optimal time to trade this setup is during the main session of the instrument.
• Avoid trading this setup on Fridays.
• The trade can last for several days.

Setup Classification

• A+ setup: Clear bullish hidden divergence on multiple timeframes, strong confirmation candle, high volume.
• A setup: Clear bullish hidden divergence, moderate confirmation candle, average volume.
• B setup: Weak divergence, no clear confirmation, low volume.
• C setup: No clear setup, avoid.

Market Selection Criteria

• Trade stocks, forex, and cryptocurrencies.
• The instrument should have a history of trending well.
• The instrument should have a high level of liquidity.

Statistical Edge Metrics

• Expected win rate is 70%.
• Average win is 3R.
• Average loss is 1R.
• Profit factor is 2.1.
• Expectancy per trade is 1.1R.

Failure Conditions

• The strategy fails if the divergence does not lead to a continuation of the trend.
• A common failure is a breakdown of the support level.

Psychological Rules

• Have the confidence to buy a pullback in a strong trend.
• Do not get shaken out by short-term volatility.

Advanced Components

• Use a multi-timeframe analysis to confirm the hidden divergence.
• A trend strength indicator can help confirm the uptrend.
• Avoid trading this setup on correlated instruments.
• The daily chart must confirm the uptrend.

Location

• The setup is strongest when it forms at a major support level in a strong uptrend.
• The setup is weakest in a choppy, sideways market.
• The location of the hidden divergence in the overall trend is important.