Hidden divergence is a technical analysis that tells if a positive or negative trend is coming. These divergences can be bullish or bearish. Learn how it works.

Divergence is a type of pattern found on crypto price charts that signals an upcoming shift in trend. Classic or regular divergence is found at the end of a trend, while hidden divergence is found at the end of a trend consolidation.

Both types of divergence appear frequently on crypto charts. Alert traders who spot them are able to see good investment opportunities.

 pattern spotted on price charts when the price of a crypto asset is moving in the opposite direction of a 

 or moving contrary to other data. Divergence is a warning that the current trend is weakening and may change.

Divergence signals that a positive or negative price move may soon happen. Positive (bullish) divergence signals that prices may soon rally. Negative (bearish) divergence signals that prices may dip soon.

When positive divergence is spotted on trading charts, crypto traders who are currently short the asset will plan to exit and close their positions. Crypto traders who are flat or long the asset will prepare to position long or add to their long position since positive divergence signals a rally may soon begin. 

There are two types of divergence that can signal a bullish rally may soon begin. Regular or classic divergence is the most common type. Hidden divergence is a little more difficult to spot but can be a powerful pattern, signaling a shifting trend.

Regular divergence occurs when the price of a cryptocurrency continues higher and creates higher highs, but the indicator creates lower highs.

In the image above, Bitcoin continues to create new all-time highs in price. However, the 

 (RSI) indicator is creating a series of lower highs. This is a bearish symptom of market momentum and suggests a trend change from up to down is about to begin.

The same thing can also happen in the opposite direction.

In the example above, Bitcoin is experiencing a correction and keeps carving lower lows in price. However, the 

 creates higher lows, signaling the downward momentum has weakened and a bullish rally about to begin. Bitcoin goes on to rally approximately 20% in a couple of weeks.

Hidden divergence is created when the price of a cryptocurrency carves a higher low, while the indicator creates a lower low. Typically a hidden divergence can also be categorized by a bullish or bearish hidden divergence.

 happens during a correction of an uptrend when the value of an asset makes a higher low. However, the oscillator is still showing a lower low. This usually translates that the bullish trend continuation signals trader to take profit.

, on the other hand, is the opposite. Meaning the value of an asset makes a lower high, but oscillators are showing a higher high. This signals a trend reversal in which a trader should stop loss and sell-off as soon as possible.

In the image above, Ethereum is consolidating and begins to grind sideways, creating a higher low in price. At the same time, the stochastic indicator points to a lower low. This is a bullish hidden divergence. It signals a rally is about to begin. Sure enough, Ethereum rallies nearly 90% over the next couple of weeks.

Hidden divergence can also signal a deeper correction.

After a feeble recovery from a May 2021 correction, Ethereum carves a hidden bearish divergence pattern. Ethereum displays a lower high on price, while the MACD indicator shows a higher high. This signals that a continuation of the downtrend may begin soon. Shortly thereafter, Ethereum fell 35% further.

The difference between regular and hidden divergence is subtle. 

Regular divergence is typically found at the end of a long trend and signals a new corrective phase. Hidden divergence is typically found at the end of a consolidation phase and signals that the consolidation is about to end in favor of the original trend’s direction.

A regular divergence is used at the end of a long trend, while hidden divergence is used at the end of consolidation.

Hidden divergence is different from regular divergence due to the location of the pattern. Hidden divergence tends to occur within an existing trend. It signals the end of a consolidation phase within the larger trend. We call it “hidden” because it isn’t obvious to the untrained eye.

Then, between February 10 and February 14, another consolidation occurs. Again, RSI is forming a lower low, while Bitcoin’s price creates a higher low. This hidden divergence signals the end of that small correction and Bitcoin rallies further.

As the trend is tiring, regular bearish divergence appears, signaling that the trend may soon turn lower. Beginning February 19 to–21, Bitcoin’s price carves a series of higher highs. However, RSI is pointing lower highs at the same time, suggesting the momentum is very weak and a reversal is imminent. Bitcoin subsequently corrects 25% lower.

Hidden divergence will appear in both bullish and bearish directions. The examples above using Bitcoin are great illustrations of bullish hidden divergence.

An informed trader can also use hidden bearish divergence to help them identify when a continuation of the trend may continue lower. This is helpful when the crypto markets are experiencing a correction, though the average trader is uncertain if the correction will dig deeper.

Above, as Bitcoin is correcting lower in the latter part of March 2021, bearish hidden divergence appears. On the chart, you can see a higher high by using RSI, while we have a lower high on Bitcoin’s price during the same period. This is a clue that more losses are on the horizon. Shortly thereafter, Bitcoin’s price fell about 12% in two days.

Spotting hidden divergence can be tricky to the untrained eye. However, with some practice, you will be able to spot and trade the divergence in your favor. Hidden and regular divergence can be spotted on all crypto chart time frames, so you can find plenty of opportunities to practice spotting it on crypto charts.

One important ingredient for seeing divergence is using a technical indicator. Most oscillators (indicators) will work. But keep in mind that adding more oscillators to the chart does not equate to a more reliable signal. Choose the oscillator or charting tool that you’re most comfortable with. Regardless of the indicator chosen, that same indicator can help you identify both regular and hidden divergence.

In several examples above, we used RSI. In the following examples, we’ll illustrate using stochastics and MACD, which are two other common tools used to spot divergences.

When using the MACD to identify divergences, you can utilize any of these three parts. You don’t need all of them to spot the divergence. For these illustrations, we’ll focus on the MACD line. I recommend thickening the MACD line on your chart so that it’s easier to see.

Next, determine the direction of the trend. If the trend is up, then we’ll look for bullish hidden divergence, which means the MACD line will print a lower low while the price prints a higher low. If the trend is down, then look for bearish hidden divergence, where the MACD line prints a higher high, but the price prints a lower high.

Here’s an example of a 1-hour price chart from March 2021. After bottoming on March 25, Bitcoin began to rally. Consolidation occurs between March 27–28. On March 28, the MACD line is printing lower lows compared to the March 27 value — and yet, Bitcoin’s price is higher. This is a setup for another rally. Once the consolidation ends, Bitcoin rallies about 9% over the next two days.

Spotting Hidden Divergence Using Stochastics

The stochastic oscillator (some charting packages call it slow stochastic) is a three-input oscillator that prints two lines. I usually use the input value of 15-5-5, but 14-3-3 is also useful.

Thicken the %K line so it’s easier to see on the charts.

Above, we can see Ethererum locked into a downtrend on a 1-hour chart in June 2021. From June 15–7, a hidden bearish divergence is spotted as the stochastic oscillator prints a higher high, while Ethereum carves a lower high.

This pattern suggests the consolidation of the previous downtrend is over, and that Ethereum may continue to fall. With the benefit of hindsight, we can see that the price correction in Ethereum accelerated lower as the cryptocurrency lost about 20% over the next two days.

Applying Hidden Divergence to Crypto Technical Analysis

Learning to spot hidden divergence patterns doesn’t have to be difficult — especially when you consider the frequency with which hidden divergence appears on crypto charts. Now that you’ve spotted the pattern, what do you do next?

Follow this step-by-step guide on setting up the trade.

Hidden divergence is a pattern that signals the end of price consolidation. With Bitcoin, it will signal a continuation of the previous trend. To get the most out of your trade, look for the hidden divergence pattern within the context of the larger trend.

For example, if the larger trend is up, then look for bullish hidden divergence. When you spot the bullish hidden divergence pattern, use it as a buy signal. Ignore bearish hidden divergence patterns in an uptrend.

Do the opposite in a downtrend: look for bearish hidden divergence, and ignore the bullish patterns. Once you see the bearish hidden divergence pattern, then look to sell.

You’ll receive a more reliable signal when the hidden divergence pattern is aligned with the direction of the larger trend.

After you’ve spotted a hidden divergence trade that aligns with the larger trend, it’s time to plan out the trade’s parameters. Divergence patterns are great for signaling an upcoming trend change, but they can be less reliable when it comes to the timing of the trend change. Therefore, it’s important to give your trade room to breathe. You don’t want the normal movements of the market to stop out your trade.

After you spot the hidden divergence, place the stop loss just beyond the recent swing price extreme. In the case of bullish hidden divergence, place the stop loss just below the swing low where the buy signal shows up. In the case of bearish hidden divergence, place the stop loss just above the swing high where the sell signal occurred.

As you know, crypto markets can trend at mind-blowing rates. Traders with dreams of endless profits will look to crypto and place open-ended trades with no exit plan. However, I would encourage you to think differently.

If you’re trading on shorter-term charts, i.e., 1-hour or 2-hour, consider a target where you can remove part or all of your trade. A good rule of thumb is to target at least twice the distance to your stop loss. So, if your stop-loss is 100 ETH, then target at least 200 ETH. If you’re fortunate and prices move in your favor, watch out for classic divergence that will signal a premature end to the trend.

With a little practice, hidden divergence patterns can be found on a lot of crypto charts. However, there are a few limitations to be aware of.

First, divergence patterns are easy to spot in hindsight but potentially difficult to spot in real-time. This is because the emotional state of the market will get you excited about a bullish bump, only for you to find out later that this was a bearish hidden divergence setup. Try to keep your emotions out of the market. An emotional eye can bias your analysis.

Secondly, when hidden divergence appears late in a trend, risk-to-reward ratios aren’t as reliable. Most of the trend is over, and by the time you wait for the price to diverge from the oscillator, you’re entering into the trend at a worse price point.

Lastly, the price patterns for smaller cryptocurrencies may not be as reliable as the ones you’ll find with larger markets like Bitcoin and Ethereum. Fewer buyers and sellers are interested in a smaller market, leaving it more prone to volatility and bad tics.

Bullish and bearish hidden divergences are powerful patterns seen at the end of consolidation. They signal a continuation of the original trend. These patterns are frequently found within Bitcoin, Ethereum, and other crypto markets, making them easy to learn. 

However, spotting them in real-time can be challenging. Additionally, if hidden divergence is discovered late in the trend, the trade tends to be less rewarding. 

The key to success in trading hidden divergence is to filter your trades in the direction of the larger trend. Always analyze the market sentiment, and it is best a trend-following 

Intermediate

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Hidden Bullish & Bearish Divergence: How to Apply For Crypto Trading?

MVRV Z-score is a great way to calculate fair value of cryptocurrencies. Learn how to determine their actual value with this easy-to-understand metric.

, one of the things they most frequently discuss is, "What are bitcoins worth?" Since Bitcoin's value is mostly determined by supply and demand, there's no easy answer to this question. To find a Bitcoin's fair value, you have to carefully consider several factors. An MVRV Z-score can make all these calculations a little simpler. How do MVRV Z-scores work? Explore our guide to learn what an MVRV Z-score is, and how you can use it to assess Bitcoin’s value.

MVRV Z-score is a helpful metric that provides insight into the value of any cryptocurrency but is more typically used for Bitcoin. MVRV stands for "market value to realized value," and it shows whether the cryptocurrency is overvalued or undervalued at the moment.

This metric has its roots in the MVRV ratio, which 

 in 2018. The original MVRV ratio simply compared the market value and realized value for Bitcoin. It was a great way of following spur-of-the-moment price trends, but it didn't provide much insight into Bitcoin's fair value.

The MVRV Z-score is a modification of Mahmudov and Puell's original metric. First generated by 

 in late 2018, the MVRV Z-score metric adds the mathematical concept of Z-scores to the MVRV metric. A 

 the number of standard deviations that go above or below the mean value. However, an MVRV Z-score substitutes the realized value of Bitcoin for the mean value.

There are plenty of sites that show MVRV Z-score charts, so the simplest way to calculate an MVRV Z-score is to look it up. However, it's worth taking the time to learn how to calculate it yourself. Knowing how to calculate the MVRV Z-score of Bitcoin provides a lot of insight into how the concept works.

The basic formula for the MVRV Z-score simply subtracts the realized value of Bitcoin from its market value, and divides that total by the standard deviation. Here's how to calculate the MVRV Z-score:

Since MVRV Z-score was developed, it's been a critical part of Bitcoin investing. Why is the MVRV Z-score so useful? It helps to identify market trends and provide a more accurate picture of Bitcoin's fair value.

Seeing the current MVRV Z-score provides some insight into whether Bitcoin is overpriced or underpriced. Any time the score is greater than 6.9, Bitcoin is most likely overvalued. Many charts will show this overvalued zone as a red or pink "danger zone" that the MVRV Z-score line occasionally crosses into. When the score is below 0.1, Bitcoin is undervalued relative to Bitcoin's fair value. Charts will often show this as a green "safety zone" that indicates it's a good idea to buy Bitcoin.

The MVRV Z-score is especially useful for identifying momentum. People look at market trends to determine what Bitcoin is worth. If Bitcoin's fair value jumps or drops drastically, it gains attention — and causes even more drastic shifts. The MVRV Z-score shows you this momentum, and its data can often let you know when the market is about to shift. Historically, any time the weekly close has an MVRV Z-score of ﹥ 5, there’s a 94.36% chance of reversal.

This metric has both advantages and disadvantages. It can be very helpful for estimating Bitcoin's fair value, but it isn't foolproof.

Here are some pros to the MVRV Z-score that you should know about.

Keep in mind that there are also some potential cons to the MVRV Z-score.

Is MVRV Z-Score Reliable as a Bitcoin Price Predictor?

What is Bitcoin worth? As just mentioned, the MVRV Z-score won't necessarily tell you the precise value of a bitcoin. Like any other pricing indicator, there are some slight variations in the MVRV Z-score’s reliability. You can't simply sell the instant the score hits 6.9, because there’s no guarantee Bitcoin prices won't rise higher. However, it does provide a very accurate estimate of a Bitcoin's fair value.

In addition to helping you figure out Bitcoin's fair value, the score is fairly reliable at identifying potential market shifts. If you take a look at the metric's past, it was able to accurately predict the pricing drops of April 2013, December 2013 and December 2018 one to two weeks before the market crashed.

, an MVRV Z-score provides a little extra data. In addition to confirming whether a cryptocurrency is overvalued or undervalued, it also shows by how much. The more drastic peaks of a Z-score give you some additional insight into how the market is moving, so you can better guess what Bitcoin's (in this case) fair value will be in the future. Despite including extra detail, this score remains fairly simple to use.

As you can see, the MVRV Z-score is very useful. It's not an absolute guarantee, but it is very useful for seeing whether Bitcoin's fair value might be a little higher or lower than the current market value. Like any other crypto metric, this score works best when you combine it with other data to get a look at the big picture. 

All in all, while indicators like MVRV Z-score might offer some insight into the fair value of a cryptocurrency, they must still be taken with a pinch of salt. With macroeconomic factors like government regulations and inflation in play, any cryptocurrency’s price can become extremely volatile, rendering these indicators and charts ineffective.

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MVRV Z-Score: Learn What Bitcoins Are Worth Relative to Their Fair Value

Unsure of whether to HODL onto your crypto? Gain a long-term perspective by using the Gaussian Channel indicator.

Technical indicators are widely used by traders to predict the future price movement of financial instruments. Amid the uncertainty in 

 price, there’s a lot of talk about the Gaussian Channel, and the ability of this indicator to predict future outcomes.

If you're HODLing Bitcoin or other financial instruments, this article can help you decide whether to hold these assets or change your strategy. We'll also discuss relevant strategies that both long-term and swing traders can use to benefit from the existing price action.

The Gaussian channel indicator is a technical indicator which defines price trends in the financial markets by minimizing the lag.

, one of the greatest mathematicians of all time. While Gauss did not have access to modern statistical software, nor did he intend to trade commodities, his statistical models have proved extremely powerful in interpreting price movements in financial markets.

The modern interpretation of the Gaussian channel indicator is based on the popular statistical concepts of normal distribution and bell curve. In technical terms, the normal distribution of data puts the mean in the center, and the standard deviations measure dispersion around the mean.

In simple words, the Gaussian channel indicator tries to predict the direction of a price trend, which can be used to trade forex, stocks, commodities and other financial instruments.

In trading software, an indicator is a channel that consists of three bands: A high band, a center band and a low band. Whenever the price enters the channel from either the top or the bottom, it signals a potential price reversal. The change of colors from red to green (or green to red) confirms the change.

Lately, the Gaussian channel indicator is gaining a lot of attention. It's in the news because crypto investors want to know if Bitcoin’s price will continue to decline further, or if it will bounce back.

If the price trend on the Gaussian channel is any indication, the weekly and daily charts of 

 suggest that we may see a bearish run in the coming months. We can easily evaluate with a glance at the weekly BTC/USD chart.

On the same note, we need to understand that the Gaussian channel indicator isn’t a Holy Grail; it can also give faulty signals. If you look closely at the previous chart, you can observe that the indicator gave a false signal in March 2020 when the price closed below the channel.

To avoid losses, traders use stop-loss and various other methods, which are discussed later in this article.

How to Use the Gaussian Channel Indicator

The indicator can be used in multiple ways. For instance, if you're bullish on Bitcoin, then wait for the price to enter the Gaussian channel. It can indicate a potential trend reversal. To confirm such a move, traders often wait for a candlestick to end above the lower band of the Gaussian channel. Once the price passes through the upper band, it's a sign of a bullish trend. A similar strategy can be used to forecast a bearish trend.

Traders who seek long-term trades can also wait for the Gaussian channel indicator to turn from green to red, or vice versa. In this case, they're likely to get a more refined signal without false alerts. However, the downside to waiting for the indicator to change color is a delay in entering the market.

While the Gaussian channel indicator is a very powerful tool to detect a trend change, it's recommended to select an entry point based on the level of risk you're willing to take. Some traders also use the middle band to initiate a trade, while others prefer an additional technical indicator to confirm a trend.

Pros and Cons of the Gaussian Channel Indicator

If used prudently, the Gaussian channel can detect a potential new trend. However, this can only help if you're also aware of the risks. Understanding such shortcomings will help formulate a viable strategy that can withstand price movements in the wrong direction.

Is the Gaussian Channel Indicator Reliable?

There isn't any universal standard to determine the reliability of any indicator. Despite this, certain factors can tell you if you should rely on technical parameters.

First, look for an indicator that offers more correct signals than incorrect ones. In theory, you’ll be profitable if you can accurately predict the trend more often than not. Despite this theory, very few traders — if any — would consider trading with such an indicator because traders usually look to gain substantial profits.

Therefore, another important metric that traders look for is the potential 

. If your indicator is only 50% correct in determining the price, but it offers a good profit-to-loss ratio per trade, it's reliable.

Ideally, a reliable indicator gives correct signals more often than not, and the profit-loss ratio is higher than 2:1.

Based on these two deciding factors, the Gaussian channel seems a very reliable indicator. This is evident from the opportunities reflected in the daily BTC/USD chart. By referring to BTC/USD's chart starting from Oct. 2020, when Bitcoin’s price took off, we can see that the indicator has accurately predicted the trend, both in trending and ranging conditions. This is in spite of the many ups and downs. If you’re a medium-term investor relying on this chart, there were at least four clear trends in either direction.

Additionally, many users tend to rely on the lower and the upper bands of the Gaussian channel indicator as support and resistance for BTC.

Technical analysis is mainly used to determine support and resistance levels. In other words, it’s only good if you're able to pinpoint exact entry and exit points on the trading chart.

Fortunately, the reliability of the Gaussian channel indicator allows traders to devise strategies that fit their trading styles. To get you started, here’s an overview of different strategies you can use:

Look for a bullish signal whenever a candle closes inside the channel from below. You can place the stop-loss at the lowest point of the existing trend. Take profit when the trend changes — i.e., the candle closes inside the channel from above.

: They say that taking a position opposite an existing trend is similar to standing in front of a train. In simpler words, you’ll quickly burn out by going against the existing trend. Instead, it’s more profitable if you follow a trend.

One way to do this is to figure out a daily or weekly trend on the chart. If the long-term trend is bullish, only make a bullish trade. If the long-term trend is bearish, make a bearish trade.

When you follow the trend, you're likely to find a very reasonable profit-to-loss ratio. In the above example, the false entry would have stopped you within a few points, considering that the stop-loss is just above the top of the last candlestick. However, the subsequent entry would reap substantial benefits even with another tight stop-loss.

: Sometimes, the trend is not as clear as you’d like to see. In this case, it's better to use another indicator to confirm the price action. These days, most popular software offers various "moving average crossover" indicators. You can use 

 (MA) crossover to get in and out of a trade quickly during a ranging market.

The Gaussian channel indicator is a powerful tool which can accurately forecast a future trend. You can either use it as a stand-alone indicator, or in conjunction with another indicator to confirm the signal. Irrespective of your trading style, there’s little doubt that the Gaussian channel indicator can provide accurate entry and exit signals in a variety of time ranges and market conditions.

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Gaussian Channel Indicator and Long-Term Crypto Perspectives

Tired of whales suddenly turning the crypto market on its head? Know where and when big money is flowing with the Chaikin Money Flow indicator.

Two main players in the financial markets are the large whales and the small retail traders. The large institutions and whales are the ones who typically move the market’s pricing, whereas the small retail trader typically doesn’t. Therefore, the small retail trader can gain an edge if they can spot where the big money is flowing.

Technical indicators like the Chaikin Money Flow are designed to alert traders when the market is accumulating and set to rally higher. In this article we’ll review what the CMF is, and how to read it so you can spot where the big money is flowing. 

The Chaikin Money Flow indicator tells traders if institutions, whales and investors are accumulating and buying crypto, or distributing and selling the market. Essentially, CMF indicates the money flow behind crypto.

The Chaikin Money Flow indicator (CMF) was created by stock analyst Marc Chaikin in the early 1980s as a way to measure the strength of a trend combined with the volume behind it. The CMF assumes that not all price trends are created equal. A price trend that’s moving higher, but closing each day near its low, is a weak uptrend compared to one with daily closes near the highs.

Trading volume also factors into a trend’s strength. An uptrend on weak or slowing volume is a sign of a weakening uptrend. On the other hand, strong and growing volume is a healthy sign of a strong uptrend.

The CMF was designed to mix these variables into one easy-to-read indicator that prints below the price chart and helps traders identify buying and selling pressure within the market.

What the Chaikin Money Flow Indicator Looks Like

The CMF appears as a line or area graph in a window, separate from the crypto’s price chart, oscillating between −100 and +100. This range makes it a bounded oscillator.

Many charting packages offer the CMF with the default setting of 20. However, a better default setting when using the CMF for crypto is 21 or 28, since many of the other markets only trade five days per week — and those markets contain about a four-week cycle of 20 trading days. This allows the indicator to capture a full cycle.

Crypto trades 24 hours a day, seven days a week. Therefore, 20 trading days is less than three full weeks. A 21 input setting allows for three full weeks, and a 28 input setting allows for a full four-week cycle.

The most important point within the CMF indicator is the zero line. When the CMF is above zero, the crypto trend is said to be higher. When the CMF is below zero, then the trend is considered to be lower. There may be instances where the price is moving higher, but on weakening volume. In those situations, the CMF prints lower readings, alerting the trader to slowing momentum to the upside.

There are three parts to the calculation of the Chaikin Money Flow.

The first part includes figuring the money flow multiplier.

Then, find the product of the money flow multiplier above and the total volume for that period.

Lastly, add up the products above for the number of periods set within the indicator (recommended 28 periods) and divide the result by the 28-period sum of the total volume.

As a result, the CMF depends on the value of the money flow multiplier. This value is positive when the closing price is above the midpoint of the range, and negative when the closing price is below the midpoint of the range.

If the volume is heavy, then that multiplier swings even further away from the zero line. If the volume is light, then the effect of the multiplier is muted.

Like any indicator you apply to the charts, the Chaikin Money Flow indicator has its strengths and weaknesses. Once you’re familiar with its pros and cons, you can carefully apply the indicator to help maximize results.

 indicator. Therefore, it’s most useful when applied to trending markets, where it helps crypto traders determine the strength and direction of a trend.

Once a trend loses strength, that loss of momentum appears in the indicator as divergence, alerting crypto traders to a potential trend change.

Like all indicators, the CMF isn’t always 100% accurate, and. a trader needs to keep the CMF’s limitations in mind. For example, when the market isn’t trending, the propensity for false signals increases dramatically  — especially when there’s volatility of price. 

This is because the CMF indicator utilizes a moving average of the price and volume. The moving average of these variables tends to lag, and won’t react as quickly to abrupt changes in market conditions.

The CMF indicator has two primary uses: to determine trend direction, and trend strength.

Determining trend direction is fairly easy. First, the zero line is the barrier dividing an uptrend from a downtrend. When the CMF indicator is above zero, price and volume trends are present, suggesting that the trend is strong or growing.

When the CMF indicator is below zero, the price and volume trends are implying a downtrending market.

In many instances, the CMF indicator will hover right around zero. This generally happens during a pullback within an uptrend or a rally within a downtrend. A pullback to the zero line offers crypto traders an opportunity to enter new positions in the direction of the trend.

At important pivot points within the larger trends, divergence will appear using the CMF. Divergence is when the price is moving in one direction, but the CMF indicator is moving in the opposite one.

For example, in the daily Bitcoin chart above, notice how during March and April 2021 Bitcoin’s price continues to move higher while the CMF creates a series of lower highs. These lower highs on the CMF occur because the closing price of the daily candles isn’t in the upper portion of the day’s range. 

Additionally, if the volume of trades on the up days is relatively muted — or the volume of trades on the down days is heavy — then the volume portion of the CMF will weigh heavily on its output.

The opposite is true when the market is correcting lower. When the price continues to dip and reach lower lows, look for the CMF to form higher lows as a sign of bullish support.

During the summer of 2021, Bitcoin corrected quickly, reaching its lowest closing price since January 1. Though the correction was aggressive, the inability of the CMF indicator to follow price lower was a clue that buying interest was developing for Bitcoin.

After the bullish divergence appeared, Bitcoin went on to double its price over the next several months.

Chaikin Money Flow vs. Chaikin Oscillator

Though similarities exist between the Chaikin Money Flow and the Chaikin Oscillator, the math behind each of the indicators and how to interpret their signals is quite different.

Both indicators were created by Marc Chaikin. However, the oscillator operates similar to the 

 (MACD) indicator, due to its use of two exponential moving averages. The MACD indicator calculates momentum by comparing the 12-period and 26-period exponential moving averages.

The Chaikin Oscillator (CO) uses the 3-period and 10-period exponential moving averages of the CMF, and is said to be in an uptrend when the indicator is above zero. When the CO indicator is below zero, then a downtrend is in force.

Some traders prefer using the Chaikin Oscillator, as it tends to react more quickly to reversals in the market.

For example, on the Ethereum price chart above, notice how the Chaikin Oscillator crosses the zero line before the Chaikin Money Flow indicator. This is because the CO is using exponential moving averages to capture the momentum of the market.

The CMF is useful in determining trends and divergences. However, making it a core part of a trading strategy leaves the strategy flawed and susceptible to whipsaws. 

Therefore, here are three suggestions for additional tools to use with the CMF to strengthen its signals.

Buying the market when the CMF falls to zero is a good way to buy the dip. But how can you tell if this is just a dip, or a larger correction that may carry the CMF significantly below zero and into a new downtrend?

One way around this is to add buffers to both sides of the zero line. A common buffer used by crypto traders is +0.05 and −0.05.

Therefore, when the CMF is dipping back to zero, the crypto trader won’t sell until −0.05 is broken to the downside. Once −0.05 is broken to the downside, then the probability of a larger correction increases.

Similarly, a trader won’t buy until the CMF crosses back above the +0.05 mark. That way, even if the CMF dips briefly below zero, we have confirmation that the crypto market may continue to accelerate higher.

One drawback to using the CMF as a stand-alone indicator is that identifying risk and take-profit levels can be elusive and inconsistent. Therefore, incorporating another indicator to confirm the trend will help traders identify risk and take-profit levels, complementing the CMF nicely.

For example, applying a 9-period and 34-period 

 (EMA) to the chart can act as a timing tool for entering and exiting a position. The trader would first look for the CMF to be above zero, then take only long positions when the 9 EMA crosses above the 34 EMA. A moving average crossover strategy is a common way to enter into positions.

Similarly, a sell signal is indicated if CMF divergence appears, or if the CMF drops below zero. 

, we can use trend lines to help indicate potential pivot zones.

On the daily price chart for Ethereum, above, we can see a long-term support trend line is in place from March 2020. This trend line has supported the Ethereum price through the entire uptrend of 2020 and the correction of 2021.

A trader may notice that when the price corrects lower in the summer of 2021, Ethereum merely revisits the trend line support.

At that point, the CMF indicator is hovering near the zero line, indicating that the longer-term trend is still pointed higher. In this instance, the CMF confirms the longer-term trend, and the trend line would be the timing indicator to enter.

An Ethereum trader could buy on the touch of the trend line and place a stop-loss just below the trend line. If the trend line breaks, then the mood of the market is changing, and the trader will want to exit the trade.

After bouncing higher in July 2021, Ethereum comes back to retest this trend line in September 2021, then bounds higher.

The Chaikin Money Flow indicator can be useful for spotting momentum-related trends like when big whales are moving in the crypto market. It’s a simple indicator that’s easy to read. However, the CMF is not a perfect indicator by itself, which is why many traders combine it with other tools, such as moving averages and trend lines.

Chaikin-Money-Flow-Understanding-What-and-When-Whales-Are-Buying

Chaikin Money Flow Understanding What and When Whales Are Buying

Chaikin Money Flow (CMF): Understanding When Whales Are Buying

Looking to time your entry and exit into the crypto market? Avoid selling the bottom and buying the top with the WIlliams %R indicator!

 will tell you the story, while technical analysis is what signals when to get into and out of a trade. 

 will help you see the direction of the current trend, and when the market is overbought and oversold. The Williams %R is a tool that helps traders identify trend direction, and signals when to buy and sell. In this article, we’ll learn about this relatively unknown indicator, as well as four strategies to trade with it.

Williams %R is a momentum indicator used in technical analysis that measures whether a crypto asset is overbought and due for a correction, or oversold and about to begin a new rally.

Williams %R, also referred to as %R or Williams Percent Range, was developed by Larry Williams and first introduced in his 1979 book, “

How I Made One Million Dollars … Last Year … Trading Commodities.

 In 1973, the United States formally removed itself from the gold standard and inflation was high and rising. As a result, many commodities experienced strong trends, similar to the cryptocurrency trends we’re witnessing today.

When a market experiences strong trends, you want to utilize momentum indicators and tools to help you identify trading opportunities. Williams %R is a momentum indicator that generates easy-to-follow trading signals which allow traders to time their entries and exits.

In essence, the calculation determines how close the current price is to a recent high or low. For example, a reading of −10 suggests the asset is within the top 10% of the range. On the other hand, a reading of −90 suggests the asset is within the bottom 10% of the range.

The %R is a bounded oscillator. This means (in this case) that the output values cannot be greater than zero or less than −100. Bounded oscillators are excellent tools for providing traders signals of overbought or oversold assets, as the signals are easy to read.

With Williams %R, a reading above −20 is considered to be overbought. If a cryptocurrency goes above −20, then it’s approaching its recent highs and may be due for a correction.

On the other hand, a reading below −80 is considered oversold, suggesting a bullish reversal may occur soon because the market has sold off hard.

, the Williams %R has both advantages and limitations.

First, as a bounded oscillator, Williams %R makes reading overbought and oversold signals fairly simple: −20 represents overbought and −80 represents oversold. No additional math calculations are needed to interpret when a crypto asset has become overbought or oversold.

The biggest limitation to a bounded oscillator is that markets can remain overbought or oversold for extended periods of time. For example, if the Williams %R is vacillating between −.05 and 0, it simply means that the market is hovering near its high for the defined lookback period.  

To put it another way, if the market is in a strong uptrend, it could experience %R readings in overbought territory for an extended period of time, with the opposite being the case for downtrends.

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