Using Bullish Divergence to Find Trading Opportunities

Bullish divergence is an important trading pattern that can help technical analysts spot opportunities to go long on a stock. This comprehensive guide will teach you everything you need to know about bullish divergence, how to identify it, and how to effectively trade it.

What is Bullish Divergence?

Bullish divergence occurs when the price of a stock makes lower lows while an oscillator like RSI or MACD makes higher lows. This shows that downside momentum is slowing, which can foreshadow a trend reversal.

Here are the two key components of bullish divergence:

  • The price action makes lower lows
  • The oscillator makes higher lows

This discrepancy between the oscillator and price action shows waning bearish momentum that can lead to a bullish breakout.

Why Bullish Divergence Works

Bullish divergence works based on the principle that momentum leads price. The oscillator is showing less downside momentum even though the price is still declining. This loss of bearish momentum indicates bulls are starting to gain strength.

As buyers gain control, the price is likely to begin rising again. The momentum change happens before the price change. Hence, the oscillator leads the turn in price action.

How to Identify Bullish Divergence

Here are three key steps to correctly spot bullish divergence:

1. Find a Downward Price Trend

You need to see the price making lower swing lows for bullish divergence to form. Use the swing highs and lows to draw a downward price trendline.

2. Draw Trendlines on the Oscillator

On the RSI or MACD, connect the lowest points to form a rising trendline. The most recent oscillator low should be above this trendline.

3. Ensure the Oscillator and Price Diverge

The oscillator trendline needs to rise while the price trendline falls. As long as each subsequent oscillator low is higher, bullish divergence is occurring.

Bullish Divergence Trade Setup

Once you’ve identified bullish divergence, here is a simple trading strategy you can use:

Enter Long

Buy when the price breaks above the high of the candlestick where divergence occurred. Place a stop loss below the latest swing low.

Take Profit

Close a portion of the position at 2x risk and move the stop loss to breakeven. Trail the remaining position to capture larger gains.

Manage Risk

Use a position size that keeps your risk at 1-2% of capital per trade. Only trade strong bullish divergences at key support levels.

Tips for Trading Bullish Divergence

Here are some key tips for trading bullish divergence setups successfully:

  • Look for divergence at strong support levels like the 200-day MA or prior swing lows.
  • The oscillator should make at least two higher lows while price declines.
  • Ensure the divergence occurs on high time frame charts like the daily or weekly.
  • Trade divergence on liquid stocks and ETFs with small bid/ask spreads.
  • Watch for bullish confirmation from the price breaking resistance.
  • Always use proper risk management with stop losses.

Common Questions About Bullish Divergence

Here are answers to some frequently asked questions about trading bullish divergence:

What are the best oscillators to use?
The RSI and MACD are most commonly used for bullish divergence. Focus on the 14-period RSI or 12/26 MACD on daily charts.

Does divergence work on every time frame?
Divergence is most valid on the daily or weekly charts. Sometimes it appears on lower time frames but lacks significance.

What if the divergence fails?
No indicator is perfect. Sometimes bearish momentum overwhelms bullish divergence. Use stop losses to limit potential losses.

Can you use bullish divergence for forex, crypto?
Yes, divergence can be used across any liquid trading instrument with good price action and momentum oscillators.

Is automated divergence trading profitable?
Automated strategies can be profitable if properly backtested and optimized. However, manual inspection of divergence signals is recommended.

The Power of Bullish Divergence

When used properly, bullish divergence gives traders an early warning about building upside momentum. This edge allows you to get into trades before the price starts a new uptrend.

The key is watching for consecutive higher oscillator lows as the price prints lower lows on the chart. This confirms buyers are stepping in while sellers are exhausting themselves.

Bullish divergence marks an opportune time to get long. Use it to get into emerging uptrends early and book quick profits from short-term upswings.

Combine bullish divergence with chart patterns and other indicators to further validate buy signals. Always use prudence with risk management to avoid getting stopped out prematurely.

Mastering bullish divergence provides a profitable edge for trend traders. Learn to spot it quickly on the charts and take advantage of waning bearish momentum to get long at opportune moments.

“If you don't find a way to make money while you sleep, you will work until you die.”

- Warren Buffett

Added to wishlistRemoved from wishlist 12
Add to compare
Millionaire Gold Miner Pro EA trades automatically & earns stable profit every day. Most Profitable Robot for only $879.99.
Added to wishlistRemoved from wishlist 3
Add to compare
Golden Deer Holy Grail Indicator gives 2000 Pips per Trade with 99% Accurate Signal. Most Profitable MT4 Indicator for only $689.99
Added to wishlistRemoved from wishlist 16
Add to compare
FxCore100 EA is a very profitable scalper Expert advisor created by professional traders. It incorporates advanced strategies and analyzes multiple time frames and multi pairs. Order Now to get Special Discount.
You will get Free Vps from exness

Traders First Choice


You will get 120% Bonus from roboforex

You will get $5000 from XM
0 +
Successful Traders Making Profits with Our Robot & Indicator
$ 0
Average Profit Per Month with Our Robot & Indicator


Millionaire Gold Miner Pro EA

Number One Robot for Forex Trading.
Based on Price Action and Trend Analysis with Artificial Intelligence.
Works Best with EURUSD & XAUUSD.
You can use this EA on Multiple Accounts with Life Time Premium Support.
MyFXbook, FxBlue & Live Trading Verified.
Monthly Expected Profit is 20% to 200% with very Less Drawdown.

Added to wishlistRemoved from wishlist 12
Add to compare
Millionaire Gold Miner Pro EA trades automatically & earns stable profit every day. Most Profitable Robot for only $879.99.

check daily trading result

We will post our trading result daily on our channel. Please join our channel for daily updates.

Need Help?

Talk to our Experts. We're available 24/7.

Chat With Us
Follow us
Email to us
Automate Your Trading with Forex Robot, Forex EA & Indicator.
Compare items
  • Total (0)
error: Alert: Content selection is disabled!!
Shopping cart