What is a Bullish Divergence? Why is it important to traders?

Do You Know Divergence?

If you notice the price keeps dropping but the indicator isn’t following suit, that’s Divergence. This signal indicates that the current trend may reverse soon.

Simply put, Divergence is a contradiction between the price movement and a technical indicator. These two are not moving in the same direction, which serves as a warning that the current trend is weakening.

What is Bullish Divergence and When to See It

Bullish divergence is a signal that appears when the price has made at least two lower lows (Lower Low), but the indicator shows a bullish or non-declining trend. It suggests that selling pressure is waning and the price is likely to bounce back up.

When does Bullish Divergence occur?

Imagine:

• BTC price drops from $100 to $95
• Price continues down to $90 (makes a new low)
• But RSI or MACD does not make a new low and tries to move upward
• This is bullish divergence

This signal can occur during the day or over several hours, making it useful for all types of traders.

Regular Divergence vs Hidden Divergence - Two Different Signals

Traders often confuse Regular divergence with Hidden divergence, which differ as follows:

Regular Divergence - Reversal Signal

Regular divergence indicates that the current trend is losing strength and may change direction, such as:

• Bullish divergence = price makes a strong move down + indicator does not follow = price is about to bounce up
• Bearish divergence = price makes a strong move up + indicator does not follow = price is about to plunge

Regular divergence is a key signal traders look for to predict trend reversals.

Hidden Divergence - Trend Continues

Hidden divergence means the current trend is not over yet, and the price will continue in the same direction, for example:

• Price rises mildly (then swings slightly down) but the indicator remains strong
• This indicates the price will continue upward

Hidden divergence is useful for confirming trend continuation and entering positions in the same direction as the existing trend.

Which Indicators Are Used to Detect Divergence

1. MACD - Most Popular

MACD compares the 12- and 26-day moving averages. If MACD is positive and rising, it indicates a strong uptrend. If the price makes a new high but MACD stops rising = bullish divergence occurs.

2. RSI - Overbought/Oversold Conditions

RSI measures from 0-100. RSI above 70 indicates overbought, below 30 indicates oversold. When the price makes a new low but RSI does not = bullish divergence = price is likely to bounce.

3. Williams %R - Scaled 0-100

Williams %R works similarly to RSI for overbought and oversold signals. If Williams %R is above -20 = overbought, below -80 = oversold.

How to Properly Trade Bullish Divergence Signals

Step 1: Find Price Patterns for Bullish Divergence

Look for:

• Price gradually declining and making lower lows (Lower Low)
• Price reaching oversold zones (RSI < 30, Williams %R < -80)
• Candles start turning green and bouncing up

Step 2: Observe Indicators

If the price hits a new low but:

• MACD does not make a new low
• RSI does not make a new low and begins to rise
• This confirms bullish divergence

Step 3: Wait for Price Confirmation

Don’t rush into a trade. Divergence can occur multiple times before the price reverses. Wait until:

• Price breaks above the previous candle
• The candle closes green with high buying volume
• Now you can enter a BUY

Step 4: Set Stop Loss and Take Profit

• Stop Loss = below the lowest point of the candle where bullish divergence was identified
• Take Profit = at the nearest resistance level or 1.5-2 times the Risk/Reward ratio

Real Examples of Bullish Divergence on Charts

Case 1: ETH last month

Ethereum price dropped from $2500 to $2000 (first low) → continued down to $1800 (second low) → another new low at $1600

Meanwhile, RSI at 15 dropped to extreme lows but did not make a new low and started to rise.

👉 Bullish divergence occurred → Traders who bought at $1650-$1700 made over $400 profit when the price rebounded to $2100.

Case 2: XRP

Ripple price continued to decline, and MACD reached its lowest point, but MACD did not make a new low compared to the previous one.

👉 Bullish divergence on MACD → Entered a buy and gained 15-20% profit in the following week.

Common Mistakes Traders Make When Using Bullish Divergence

❌ Mistake 1: Entering immediately upon seeing the signal

Don’t rush in without confirmation from the price breaking out. Divergence can be false. Wait for a strong candle close.

❌ Mistake 2: Using Divergence alone

Don’t rely solely on divergence. Check other signals like support/resistance levels or Fibonacci levels. Combining with support/resistance yields the best results.

❌ Mistake 3: Setting too wide a Stop Loss

Place stop loss too far from the current price, making it unprofitable. Keep it close enough to protect against normal fluctuations.

❌ Mistake 4: Ignoring the bigger trend

Bullish divergence on a 4-hour chart in a larger downtrend may fail. Always check higher timeframes first.

Be Smarter by Combining Multiple Indicators

Try combining 2-3 indicators:

• MACD + RSI = most reliable
• Williams %R + MACD = strong confirmation
• RSI + Stochastic = comprehensive

If all three show bullish divergence simultaneously → reliability increases to nearly 80%.

Bullish Divergence Works on All Timeframes

Whether 15 minutes, 1 hour, 4 hours, or daily, bullish divergence can be used. But:

• Smaller timeframes = faster profits but higher risk
• Larger timeframes = slower profits but safer

For beginners, start from 4-hour charts or higher for better accuracy.

Trade Smartly: Incorporate Bullish Divergence into Your System

Bullish divergence is a powerful tool but does not guarantee 100%. Always combine with:

• Money management (Risk Management)
• Support/resistance analysis
• Other indicators you have studied

Successful traders are not those who find perfect signals but those who stick to their plan and cut losses consistently.

Start practicing with a demo account, learn to identify Bullish divergence, and then move to real trading. Patience = Wealth.