Stochastic Oscillator Bullish Trade Divergence and Bearish Divergence Oil

Divergence oil is one of the signals that can be generated when using the stochastic oscillator indicator.

Divergence oil is a signal that a rally or retracement is losing steam and is likely to reverse. It means that the last buyers or last sellers are pushing the price in one way while the majority of other traders have stopped trading in that direction and are cautious of a price correction or retracement.

There are 4 types of divergence setups

Example 1: Classic Trade Bullish Divergence

A Trading Classic Bullish Divergence in the stochastic oscillator indicator and the price is followed by a rise in price.

Stochastic Oscillator Oil Indicator Classic Oil Bullish Divergence

When the price is making new lows the Stochastic indicator is not moving past its previous lows it is an indication that the downward trend is about to reverse and a bullish oil rally is likely to occur.

In the example above the price set a new low but it was not coupled with a new low in the measure of Stochastic oscillator indicator, when price formed a new low then the stochastic indicator should have followed suit, but the stochastic indicator did not therefore the oil classic divergence trade setup.

Oil Trading classic divergence setup is even stronger because there is combination of a divergence trade setup and then followed by a rise above the 20% indicator level. This combines the Overbought and Oversold levels with this divergence trade setup.

Example 2: Classic Oil Bearish Divergence

A Classic Oil Bearish Divergence setup in the stochastic oscillator indicator and the price is followed by a drop in price.

Stochastic Oscillator Oil Indicator Classic Trade Bearish Divergence

When price is making new highs but the Stochastic oscillator indicator is not moving beyond its previous high it is an indication the upward trend will reverse and that a oil bearish divergence trade setup will follow.

This classic oil bearish divergence trade setup is even stronger because there is a combination of a divergence with a dip below the overbought 80 level.

Example 3: Hidden Trade Bullish Divergence

Hidden Oil Bullish Divergence trade setup signifies a retracement in an upwards trend. This oil hidden divergence setup is the best type of divergence setup to trade, because you are not trading a price reversal, but you're trading within the direction of the trend.

Stochastic Oscillator Oil Indicator Hidden Oil Bullish Divergence

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

Example 4: Hidden Oil Bearish Divergence

Hidden Oil Bearish Divergence setup signifies a retracement in a downward trend.

Stochastic Oscillator Oil Indicator Hidden Trade Bearish Divergence

Hidden oil bearish divergence oil setup is the best type of divergence to trade, because you are not trading a price trend reversal, but you're trading within the direction of the trend. This is the best place to open a sell trade, since it is even in a downward trend there is no need to wait for a confirmation signal, because you are selling in a downward trend.