The RSI & MACD Hidden Divergence Strategy is a reliable trend-following method that uses hidden divergence to anticipate trend continuations rather than reversals. By combining the Relative Strength Index (RSI) with the Moving Average Convergence Divergence (MACD), traders gain a dual confirmation edge, ensuring that both momentum and trend structure are aligned before entering a trade.

This strategy is highly effective on H1, H4, and D1 timeframes, making it suitable for intraday and swing traders who prefer structured entries with clear confirmation.

What Is Hidden Divergence?

Hidden divergence occurs when the indicator makes a higher low (in uptrends) or lower high (in downtrends), while price makes a lower low (uptrend) or higher high (downtrend).

It signals trend continuation, as the pullback in price is not matched by a momentum shift—indicating that the trend is still strong.

Types:

• Hidden Bullish Divergence:
  • Price: higher low
  • Indicator: lower low
  • Signals continuation of uptrend
• Hidden Bearish Divergence:
  • Price: lower high
  • Indicator: higher high
  • Signals continuation of downtrend

Strategy Objective

• Identify pullbacks within trends that show hidden divergence
• Confirm the signal using both RSI and MACD
• Enter the trade when momentum and price align for trend continuation

Tools and Indicators

• RSI (14)
• MACD (12, 26, 9)
• 50 EMA or 200 EMA (optional for trend direction filter)
• Clean support/resistance or trendline structure

Step-by-Step Strategy Execution

Step 1: Identify the Overall Trend

• Use price action or EMA filter (e.g. price above 50 EMA = uptrend)
• Draw trendlines or channels if needed

Step 2: Look for Hidden Divergence Setups

In an uptrend:

• Price makes a higher low
• RSI and/or MACD make a lower low
• This is hidden bullish divergence

In a downtrend:

• Price makes a lower high
• RSI and/or MACD make a higher high
• This is hidden bearish divergence

Step 3: Confirm with Both Indicators

• Only enter trades where both RSI and MACD confirm hidden divergence
• This dual-filter reduces false signals and increases conviction

Step 4: Wait for Price Action Confirmation

• Look for:
  • Engulfing candle
  • Inside bar breakout
  • Break of short-term trendline or resistance/support
• Entry: on confirmation candle close

Step 5: Place Stop Loss and Take Profit

• Stop Loss:
  • Below recent swing low (for bullish) or above swing high (for bearish)
  • Optional: use ATR (1.5x) for dynamic buffer
• Take Profit:
  • Previous high/low in trend
  • Fibonacci extension level
  • Use trailing stop for strong trend continuation

Example: GBP/USD H4 Hidden Bullish Divergence

• Price makes a higher low at 1.2530
• RSI makes lower low at 38, MACD histogram dips lower
• Bullish engulfing candle forms at minor support
• Entry: 1.2560
• SL: 1.2510
• TP: 1.2670
• Reward-to-risk: 2.2:1 with trend resumption

Best Market Conditions

• Trending markets with clean pullbacks
• Sessions with liquidity (London/NY)
• High-volume instruments: EUR/USD, GBP/USD, NAS100, Gold
• Avoid ranging or choppy markets

Advantages of the Strategy

• High probability due to trend alignment and dual confirmation
• Reduces false signals common with standard divergence
• Clear structure and entry logic
• Suitable for both forex and indices
• Encourages discipline through multi-step confirmation

Common Mistakes to Avoid

• Confusing hidden divergence with regular divergence
• Using only one indicator (e.g. RSI alone) without MACD confirmation
• Entering trades in sideways markets
• Ignoring confirmation candles or entering prematurely

Conclusion

The RSI & MACD Hidden Divergence Strategy is a refined way to catch trend continuations with high confidence. By requiring both indicators to agree and waiting for price action confirmation, this method offers precision entries and excellent reward-to-risk setups across various timeframes and markets.

To master this strategy and incorporate it into a complete trading system, enrol in our expert-led Trading Courses and learn how to turn divergence into dynamic opportunity.