TL; DR
- In the cryptocurrency market, price divergence, both bullish and negative, can occasionally predict future price direction.
- Higher chart time periods frequently produce outcomes with greater strength and effect.
- When performing technical analysis, combining market signals for confluence might be crucial.
The most important issue in the world of cryptocurrencies is where will the price of bitcoin go from here? Price divergence can occasionally be utilized to assist provide an answer to that issue, but nobody can completely predict future price movement until it actually occurs.
When price records higher highs while indications show lower lows, or vice versa, this is known as divergence. Divergence, to put it simply, is a pattern of apparent conflict between price and indication direction.
A positive divergence between price movement and the Relative Strength Index can be seen on the Bitcoin daily chart, which is seen above (RSI – Purple line). While the RSI displayed an upward trend, the price clearly displayed a negative trend. This indicates that, despite possible price declines, market sentiment is becoming more positive.
As seen in the previous example of the daily bitcoin chart, this idea also operates in the other direction. A clear negative divergence was visible throughout bitcoin’s ascent to reach new all-time high prices twice: in November and December 2017 when BTC rose near $20K and lost over 80% in a year, and again during the current ATH of approximately $65K, which was set in April 2021.
In both instances, the RSI displayed a negative pattern as the price ascended toward its top, signaling a market reversal or bearish divergence.
Divergences must be considered with regard to their time spans, much like many other chart patterns and ideas. Although it’s crucial to keep in mind that higher time frame divergences frequently carry greater weight and significance, divergences may frequently be seen in a variety of time frames, including short-term charts like the 15-minute chart. In other words, if you are too concentrated on the here and now, it might be easy to miss the wider picture.
The second most common sort of divergence after the ordinary one is the concealed one. Contrary to normal divergence, which signals a trend reversal, hidden divergence signals trend persistence.
Please use the divergence cheat sheet provided below. As you can see, when the price makes lower/higher lows and the indicator produces higher/lower lows, there is a bullish/bearish hidden divergence.
Not Just On The Divergence
Divergence must also be used in conjunction with other concepts, such as moving averages or support and resistance levels. Bitcoin and cryptocurrency technical analysis is frequently a confluence-based game. One observation or sign on its own is frequently deceptive. However, it is frequently more efficient to combine numerous techniques.
It’s also crucial to remember that nothing is ensured (otherwise, everyone was rich). Even with several confluent signals over longer time horizons, price can fluctuate in unanticipated ways. Even classic plays can develop in unexpected ways.
Does bearish mean buy or sell?
Bearish traders aim to profit from a market’s slide because they predict that it will soon collapse in value. They are now competing with bulls, who will purchase a market in the hope of making a profit.
When should I buy crypto bullish or bearish?
Is buying during a bull or down-market better? Investors in cryptocurrencies typically purchase during gloomy markets since prices are cheaper. As a result, they have a better chance of turning a profit when bullish markets start to develop.
