What is going on, BitSquad?
My name is Frankie Candles.
And in this video, I'm going to show you guys a super, super simple trading strategy
that you can use to get into some really profitable trades.
Now, this is going to require a little bit of knowledge on how to read a chart
and actually trade crypto, so if you're starting at absolute zero,
I will point you in the direction of the BitLab Academy.
And if you want a free resource to go from absolute zero to hero
when looking at the charts and trading,
you could check out my YouTube channel, Frankie Candles,
where I have a plethora of free content that shows you how to go from absolute zero
to fully understanding how to read a chart
and understanding multiple different trading strategies
to help you become a profitable trader whether the price of Bitcoin is going up or down.
I also offer a free Discord, link in the description,
where we have a super active community of great traders who share their ideas,
share their charts and all help each other grow into more profitable traders.
And I also share my sauce in there as well, so definitely check that out.
And don't forget, the links to BitLab Academy,
my free Discord and all of these other resources will be in the description down below.
But like I said, today, we're going to be going over a super simple strategy
that can help you find really, really profitable trades.
And that setup is going to be divergences.
Now, basically all a divergence is is when you have price action
moving in the opposite direction of an indicator.
And with divergences, you're usually going to be looking at a momentum indicator.
You can look at things like the RSI, the stochastic RSI, the MACD and many others.
You can even use third party indicators that you might like to find divergences as well.
Now, when it comes to divergences, there are two main types.
There are bullish and bearish divergences.
Now, you also have hidden and regular divergences,
but for this video, we're only going to be looking at regular divergences.
So I'm going to pull up a graphic
that shows you an example of what bullish and bearish divergences are.
In short, a bullish divergence occurs when price is making lower lows
and your momentum oscillator is making higher lows.
And this is going to make a lot more sense when we actually take a look at the charts.
But for bearish divergences,
you're actually going to be looking at the exact opposite,
and you're going to want to see price making higher highs
with your momentum oscillator making lower highs.
Basically what this is saying is that price is going,
for this example, we'll say to the upside,
all a divergence means is that price is moving up,
but momentum is coming down,
basically saying that this move is not going to be sustainable
and price is hitting a wall and it is likely for it to reverse in the opposite direction.
So without further ado, let's go ahead and jump into the charts.
I'm going to show you guys some examples of divergences
that have actually popped up recently
that we were able to take advantage of in my Discord.
And the writing was on the wall with this divergence.
We were able to see it from a mile away.
And it actually wound up playing out in a really big way.
So let's go ahead and jump into the charts
so I can show you guys a few different examples of each type of divergence.
So, guys, here we are on the weekly timeframe.
And for our first example,
I want to show you guys an example of a bearish divergence.
Now, we're on the weekly timeframe, so this is a pretty high timeframe.
And when you're looking at something like the weekly,
it's going to take quite a bit of time for the setup to play out,
but you can spot divergences on any timeframe.
But just understand this goes back to the basics of TA
or just the basics of reading a chart.
The lower the timeframe, the smaller the move,
and the higher the timeframe, the bigger the move.
And this is going to go back to just basic TA and basic chart understanding.
The lower timeframe will play out quicker, but they will be much smaller moves.
And on the higher timeframes,
it's going to take a lot of time for the setup to play out,
but you're going to get a much more drastic move.
So, on the weekly, it's going to take some time to play out,
but it's going to be a big move, as you're going to see here in just a second.
This high came in on April of 2021
before we actually came down for a correction
and came back up to put in a higher high in November of 2021.
So there's our higher high.
So for a bearish divergence, we're looking for higher highs on our price,
and we're going to be looking for lower highs on our indicator.
So, in this case, we're going to be using the relative strength index, or the RSI,
and you can see right here, obviously, as we just went over,
we do actually have higher highs, right?
You got a high and a higher high.
Pretty self-explanatory.
Now, what we're looking for for a bearish divergence
is the lower highs on your indicator.
And you can see right here that if we come all the way to our first top
and come straight down to our oscillator,
you're going to want to start your trendline here
and you're going to come to your second top
and come straight down and line it up with your second top.
Now, I'm going to extend this trendline just a little bit to make it a little cleaner.
But you can see that we have higher highs on our price
with our lower highs on our oscillator.
And I'm actually just going to extend this to make it a little more obvious as well.
So, with the bearish divergence, you're looking for your higher highs
and your lower highs.
And it makes that alligator mouth-looking formation,
which is indicating that price is likely going to correct to the downside.
It's showing that price wants to go higher,
but the momentum is dying off,
showing that price is basically coming to a brick wall
and wants to go ahead and correct to the downside.
And if you were able to spot this divergence on the weekly timeframe,
you would have put a lot of weight on this because it's on the weekly timeframe.
You know if it plays out, it's probably going to play out in a big way.
And we'll just say you called the top of this candle
and let's say you rode it all the way down.
You could have rode this down for about 76%.
Essentially, this bearish divergence was calling the beginning of the bear market.
And it was clear as day.
This is one of the most obvious bearish divergences you can find on any chart.
I do just want to show you guys one more example of a bearish divergence.
And if you saw this bearish divergence,
you also would have caught a very, very big move to the downside
that you could have made a lot of money off of.
So I'm actually over here on the 12-hour chart.
And what we're looking at here,
this crash is actually the crash of March 2020.
I think we all know what was happening then.
But you would have been able to spot this crash if you knew to look for the divergence.
And if you stare at the charts enough, you definitely would have seen this,
and you could have made a whole lot of money.
But same thing, as we were just looking at on the weekly, guys,
if you come in right here, we actually have a higher high,
and we actually have many higher highs,
but right here is actually where the divergence occurred.
You have a high, a higher high,
and then you come down to your RSI,
and you have a high and a lower high,
again, giving you that alligator mouth,
letting you know that, hey, price is going up, but momentum is coming down,
and it might be a good idea if you're in a long to take profit,
or if you're looking to short,
it might be a good opportunity to get into a short position.
And if you saw that, you would have been able to catch the entire March 2020 crash,
which did bring us down about 63%.
So these are pretty high timeframes.
That's why the percentages are so big.
But another thing to notice here on this divergence is if you got in about here,
you would have made about 63%,
but it also would have taken about a month to play out.
So you would have been in that trade for about a month.
And if we go back to the weekly divergence
that we saw that basically started this bear market,
you could see, if you got in up here,
you would have actually been in the trade all the way, if you were still holding it,
you would have been in this trade for over a year,
but you would have made 74%.
So that's a huge return, right?
If you're shorting the market.
But you're going to have to sit in that trade and hold out, right?
So I just kind of wanted to show you guys that,
you know, the higher up you go in the timeframes,
typically, the longer it takes for the trade to play out,
but the bigger percentage move you'll get.
So those are two pretty clear examples of a bearish divergence.
Now, I want to bring you guys over really quick to my premium Discord.
And this is a setup that we put in here recently.
And we were noticing that we were getting higher highs on our price action
as we were coming up to key levels of resistance
with lower highs on our oscillator,
giving us that open alligator mouth,
letting us know that, hey, price is moving up,
probably going to hit a brick wall,
and you are likely to correct to the downside.
So as soon as we called this out to our Discord,
you come back to our chart,
and this is actually what we were looking at here.
We had a big higher high on our price
with our lower highs on our momentum waves.
And look how well this played out.
We immediately flipped around and came to the downside.
And we've nailed that for about 8%, right?
Even without leverage,
you can make a decent bit of gains there depending on how big your bag is.
But if you can use leverage to your advantage in a responsible way,
please be careful with leverage.
But if you can use it responsibly, like we do on my channel, Frankie Candles,
you can make some serious, serious gains off of these divergences,
especially this 4-hour bearish divergence that we saw right here.
Now, I do want to actually show you some examples of bullish divergences
before I wrap up this video.
So I'm actually going to zoom in here on the 4-hour.
And I did actually just spot a divergence right here.
And we did get a move to the upside.
So you can see that we do actually have lower lows here.
We have a low and a lower low.
And if you come down to your indicator, you can see we have a low and a higher low.
Now, for the bullish divergences,
remember, you're looking for the opposite of the bearish divergences.
So we have our lower lows and our higher lows,
giving us the opposite of an alligator mouth,
and we're getting like a pinch point, is what I like to call it.
You get that little pinch point like this.
And that is indicating a bullish divergence.
And you can see right there,
if you were able to catch this bullish divergence that popped up on the 4-hour,
you could have caught the bottom of this move.
You would have immediately come up for a nice 7% move before a small retrace,
but eventually you were starting this whole uptrend,
which wound up being about 17%.
And you can make a serious, serious bag off of that move.
And it's all thanks to that bullish divergence
letting you know that there's a little bit of a divergence
between the price and the oscillator,
letting you know price is coming down but momentum is coming up.
This can't be sustained over time and you're likely to change the trend
and go to the upside, which is exactly what happened.
You could have caught an awesome 17% move just off of looking at the divergence.
Now, when you start combining these divergences
with things like key levels of support and resistance,
volume profile and other indicators to add confirmation,
it can make for some seriously confident trades
so you're not getting into your trade being all nervous.
"Is it going to play out?"
"Should I pull out?"
"What should I do?"
"I'm nervous."
It takes the emotions out the more confirmations you can get.
And when you combine this strategy with key levels.
You can see this bullish divergence that we had with our lower lows and our higher lows.
We were also coming down to a key level of support,
letting us know that it was likely we were going to bounce there anyway.
And then you get the confirmation of that bullish divergence
as well as whatever confirmations you're looking for.
And you can see here,
we also came up to this macro value area high
when we were putting in this bearish divergence,
letting us know this is a key level.
We're probably going to reject here no matter what.
And now that you see that bearish divergence forming,
you get a really, really big boost in confidence to actually take that trade and hold it.
And if you guys are interested in how to find these key levels
and how to use divergences more in depth in an actual trading strategy,
definitely check out, my YouTube channel, Frankie Candles.
We go live every single weekday at 5:45 PM Eastern Standard Time.
And we do TA for two straight hours,
where I--
where I teach my audience how to find stuff just like this
so you can also become a profitable trader.
And, guys, also, just to bring this to your attention,
we also did just roll out the BitLab Trading Suite,
which is BitLab Academy's custom indicator suite.
In that trading stack,
we actually have something called BitLab Market Intelligence.
And if you turn that on,
you can see that this indicator actually automatically calls divergences for you.
So you don't even need to draw your lines or find the higher highs.
This indicator will actually just call it for you.
And you can see, right here, it was saying,
"Hey, you got a stochastic bearish divergence here.
Might be time to start turning around."
And it actually almost called the exact top here.
Missed it by a candle, but no indicator is perfect.
This is a beautiful, beautiful, beautiful signal.
And the one thing I absolutely love about this indicator
is it actually tells you what indicators you're getting divergences on
as well as how many divergences there are,
so you can kind of know,
you can see right here we have one,
we have a--
we have one MFI bearish divergence.
And it didn't really play out that much.
But when you come up here,
you see we have a MACD histogram, RSI and momentum divergence,
and that actually played out in a very, very big way.
This also helps you kind of find out where the strong divergences are
and where the false signals might pop up.
So super, super useful indicator if you don't want to find these manually,
but you can totally find these with free indicators on TradingView.
It just takes a little bit of extra work to actually spot them and confirm them.
So, guys, I think that's all I got for this video.
I just wanted to give you guys a little bit of an intro to divergences
because this is one of the easiest things to spot on a chart,
and they also have a very, very high hit rate.
Nothing is 100%.
Sometimes divergences just don't play out.
Nothing in trading is 100%.
It's a game of probabilities.
That's why you want to incorporate multiple indicators or other things
such as key levels of support and resistance, volume profiles,
so on and so forth.
And again, if you guys are interested in learning more about this,
my YouTube channel, Frankie Candles, has a plethora of free content,
and again, we go live every single weekday,
where I show you guys how to become profitable traders
whether the price is going up or down.
And with all that being said, I'll see you guys in the next one.
Frankie Candles out.