Stochastic Oscillator Divergence Technical Indicator Oil
Divergence trading is one of the oil 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 crude oil price in one way while the majority of other traders have stopped trading in that way and are cautious of a crude oil price correction or retracement.
There are Four types of divergence set ups that can be traded using this divergence technical indicator.
Example 1: Oil Trading Classic Bullish Divergence
A Bullish Divergence in stochastic indicator and crude oil price is followed by a rise in crude oil price.
stochastic divergence technical indicator
When the crude oil price is making new lows the stochastic divergence indicator is not moving past its previous lows it is an indication that the down oil trend is about to reverse & a bullish rally is likely to occur.
In the oil example above the crude oil price set a new low but it was not coupled with a new low in the measure of Stochastic, when crude oil 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 Over-bought & Oversold levels.
Example 2: Oil Trading Classic Bearish Divergence
A Bearish Divergence in stochastic indicator and crude oil price is followed by a drop in crude oil price.
stochastic divergence technical indicator
When crude oil price is making new highs but the stochastic divergence indicator is not moving beyond its previous high it is an indication the up oil 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 overbought 80 level.
Example 3: Oil 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 crude oil price oil trend reversal, but you are trading within the direction of the Oil Trading market trend.
stochastic divergence technical indicator
Even though, the stochastic oscillator stochastic divergence indicator made a lower low the crude oil price low was higher than the previous low (higher low). This means that even though the sellers made a good attempt to push crude oil price down as indicated by the stochastic divergence indicator, this was not reflected on the crude oil price, and the crude oil price did not make a new low. This is the best place to buy the oil instrument, since it is even in an upward oil trend there's no need to wait for a confirmation trading signal, because you are buying in an upward Oil Trading market trend.
Example 4: Crude Oil 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 crude oil price oil trend reversal, but you are trading within the direction of the crude oil trend. This is the best place to sell the oil instrument, since it's even in a down oil trend there's no need to wait for a confirmation trading signal, because you are selling in a downwards crude oil trend.
