Stochastic Oscillator Divergence Technical Indicator Commodities
Divergence trading is one of the commodity signals that can be generated when using the divergence indicator stochastic oscillator.
Divergence on stochastic indicator is a signal that a rally or retracement is losing steam & is likely to reverse. It means that the last buyers or the last sellers are pushing the commodities price in one way while majority of other traders have stopped trading in that way and are cautious of a commodities price correction or retracement.
There are four types of divergence setups which can be traded using this divergence technical indicator.
Example 1: Commodities Trading Classic Bullish Divergence
A Bullish Divergence in the stochastic technical indicator and the commodities price is followed by a rise in commodities price.
stochastic divergence technical indicator
When the commodities price is making new lows the stochastic divergence indicator is not moving past its previous lows it is an indication that the down commodity trend is about to reverse & a bullish rally is likely to occur.
In the commodity example above the commodities price set a new low but it was not coupled with a new low in the measure of Stochastic, when commodities price formed a new low then the indicator should have followed suit, but the stochastic did not therefore the divergence setup.
This divergence trading setup is even stronger because there is combination of a divergence & then followed by a rise above the 20% level. This combines the Overbought & Oversold levels.
Example 2: Commodity Trading Classic Bearish Divergence
A Bearish Divergence in the stochastic indicator and commodities price is followed by a drop in commodities price.
stochastic divergence technical indicator
When commodities price is making new highs but the stochastic divergence indicator is not moving beyond its previous high it is an indication the up commodity trend will reverse & that a bearish divergence will follow.
This set-up is even stronger because there is a combination of a divergence set-up with a dip below the overbought 80 level.
Example 3: Commodities Hidden Bullish Divergence
This stochastic divergence indicator setup signifies a retracement in an upwards trend. This is the best type of divergence to trade, because you are not trading a commodities price commodity trend reversal, but you are trading within the direction of the Commodity Trading market trend.
stochastic divergence technical indicator
Even though, the stochastic oscillator stochastic divergence indicator made a lower low the commodities price low was higher than the previous low (higher low). This means that even though the sellers made a good attempt to push commodities price down as indicated by the stochastic divergence indicator, this was not reflected on the commodities price, and the commodities price did not make a new low. This is the best place to buy the commodity instrument, since it is even in an upward commodity trend there is no need to wait for a confirmation trading signal, because you are buying in an upward Commodity Trading market trend.
Example 4: Commodity Trading Hidden Bearish Divergence
This setup signifies a retracement in a downwards trend.
stochastic divergence technical indicator
This is the best type of divergence to trade with this stochastic divergence indicator, because you are not trading a commodities price commodity trend reversal, but you are trading within the direction of the commodities trend. This is the best place to sell the commodity instrument, since it's even in a down commodity trend there is no need to wait for a confirmation trading signal, because you are selling in a downwards commodities trend.
