Stochastic Oscillator Divergence Technical Indicator Gold Trading

Divergence trading is one of the gold 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 last sellers are pushing the xauusd price in one way while majority of other traders have stopped trading in that way & are cautious of a xauusd price correction or retracement.

There are 4 types of divergence setups which can be traded using this divergence indicator.

Example 1: Gold Trading Classic Bullish Divergence

A Bullish Divergence in stochastic technical indicator and xauusd price is followed by a rise in xauusd price.

stochastic divergence technical indicator

When the xauusd price is making new lows the stochastic divergence indicator is not moving past its previous lows it is an indication that the down gold trend is about to reverse & a bullish rally is likely to occur.

In the xauusd trading example above the xauusd price set a new low but it was not coupled with a new low in the measure of Stochastic, when 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 and then followed by a rise above the 20% level. This combines the Over-bought and Oversold levels.

Example 2: XAUUSD Trading Classic Bearish Divergence

A Bearish Divergence in stochastic technical indicator and the xauusd price is followed by a drop in xauusd price.

stochastic divergence technical indicator

When xauusd price is making new highs but the stochastic divergence indicator is not moving beyond its previous high it is an indication the up gold trend will reverse & that a bearish divergence will follow.

This trade setup is interpreted to be even stronger because there is a combination of a divergence with a dip below over bought 80 level.

Example 3: Gold Trading Hidden Bullish Divergence

This stochastic divergence indicator setup signifies a retracement in an upward trend. This is the best type of divergence to trade, because you are not trading a xauusd price trend reversal, but you are trading within the direction of the Gold market trend.

stochastic divergence technical indicator

Even though, the stochastic oscillator stochastic divergence indicator made a lower low the xauusd price low was higher than the previous low (higher low). This means that even though the sellers made a good attempt to push xauusd price down as indicated by the stochastic divergence indicator, this was not reflected on the xauusd price, and the xauusd price did not make a new low. This is the best place to buy gold, since it is even in an upward gold trend there is no need to wait for a confirmation trading signal, because you are buying in an upward Gold market trend.

Example 4: Gold 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're not trading a xauusd price trend reversal, but you are trading within the direction of the market trend. This is the best place to sell gold, since it is even in a down gold trend there is no need to wait for a confirmation trading signal, because you're selling in a downwards Gold trend.