Hi GinoE. Classic divergence usually "works" because of changes in momentum - which are not easy to see by eyeballing changes in price of a stock. You can get a lower low in a stock price but momentum hasn't increased at the same rate as the drop in the price and vice versa - you can get a higher price in a stock but momentum may have slowed - so you get a negative divegence.
Momentum must slow before a rising price can reverse to the downside , e.g., a car coasting up hill after a steep fall, will slow (momentum drops) before it goes back down the hill.
Momentum is often measured by such indicators as MACD, RSI. Possibly, Rate of Change% is better but rarely used.
I've never seen a satisfactory explanation why hidden divergence "works".
But my own observations suggest that it "works" because of recent prior history. If a relatively long up-trend has a steady Rate of Change% then action can quickly produce a lower low on indicators if the ROC% descent is a bit more rapid than prior history.
So, if a hidden divergence is to occur, there will probably be a negative or steady ROC% on the previous rise.
That's complicated stuff - but I hope it helps.
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