Hidden Bullish and Oil Hidden Bearish Divergence Crude Oil
Hidden divergence trading strategy is used as a possible sign for a oil market oil trend continuation after the crude trading price has retraced. It is a signal that the original oil trend is resuming. This is the best divergence setup to trade because it is in same direction as that of the continuing market trend.
Divergence trading strategy
This divergence trading setup happens when crude oil price is forming a higher low ( HL ), but the oscillator (indicator) is showing a lower low (LL). To remember them easily think of them as W-shapes on Chart patterns. It occurs when there is a retracement in an upwards crude oil trend.
The example shown and illustrated below shows an image of this divergence trading set up, from the screenshot the crude trading price made higher low (HL) but the indicator made a lower low (LL), this shows that there was a divergence signal between the crude oil price and indicator. This signal shows that soon the oil market up oil trend is going to resume. In other words it shows this was just a retracement in an upward oil trend.
Divergence trading strategy
This confirms that a retracement move is complete and indicates underlying strength of an upward crude oil trend.
Oil Hidden Bearish Divergence
This setup happens when crude oil price is forming a lower high ( LH ), but the oscillator is showing a higher high (HH). To remember them easily think of them as M-shapes on Chart patterns. It occurs when there is a retracement in a downward crude oil trend.
The example shown and illustrated below shows an image of this oil setup, from the screenshot the crude oil price made a lower high (LH) but the indicator made a higher high (HH), this shows that there was a divergence between the crude trading price & indicator. This shows that soon the oil market down oil trend is going to resume. In other words it shows this was just a retracement in a downward trend.
Divergence trading strategy
This confirms that a retracement move is complete and indicates underlying strength of a downward crude oil trend.
Other popular technical indicators used are CCI indicator (CCI), Stochastic Oscillator, RSI and MACD. MACD & RSI are the best technical indicators.
NB: Hidden divergence is the best type to trade because it gives a signal that is in the same direction with the current market trend, thus it has a high reward to risk ratio. It provides for the best possible entry.
However, a trader should combine this oil setup with another indicator like the stochastic oscillator or moving average and buy when the crude trading price is oversold, and sell when the crude trading price is overbought.
Combining Hidden Crude Oil Divergence with Moving Average Oil Trading Crossover Strategy
A good indicator to combine these oil setups is the moving average indicator using the moving average crossover method. This will create a good trading strategy.
Moving Average Crossover Method - Divergence trading strategy
In this divergence oil strategy, once the trading signal is given, a trader will then wait for the moving average cross-over method to give a buy/sell oil signal in same direction, if there is a bullish divergence set up between the crude oil price and indicator, wait for the moving average cross over system to give an upward crossover signal, while for a bearish divergence set-up wait for the moving average cross over system to give a downward bearish crossover signal.
By combining this Divergence strategy with other indicators this way a trader will avoid whipsaws when it comes to trading with this oil signal.
Combining with Crude Oil Fibo Retracement Levels
For this example we shall use an upward market trend. The oil instrument - We shall use the MACD indicator.
Because the hidden divergence is just a retracement in an upward oil trend we can combine this oil trading signal with most popular retracement tool that is the Fibonacci retracement levels. The example shown and illustrated below shows that when this oil setup appeared on the chart, the crude trading price had just hit the 38.2% level. When crude oil price tested this level, this would have been a good level to place a buy order.
Divergence trading strategy setup
Combining with Crude Oil Fibo Expansion Levels
In the oil example above once the buy oil trade was placed, a trader would then need to calculate where to place take profit for this trade. To do this one would need to use the Crude Oil Fibonacci Expansion Levels.
The Fibonacci expansion was drawn as shown & illustrated on oil chart as shown and illustrated below.
Divergence trading strategy setup
For this example there were three take profit levels:
Oil Fibo Expansion Level 61.80% - 131 pips profit
Oil Fibo Expansion Level 100.00% - 212 pips profit
Oil Fibo Expansion Level 161.80% - 337 pips profit
From this divergence trading strategy combined with Fibonacci would have provided a good strategy with a good amount of profit set using these take profit levels.
