Bullish & Bearish Divergence Commodity Trading Using Commodity Trading Software

Divergence trading is one of the commodity signals that can be generated when using the stochastic indicator.

Divergence 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 commodity price in one way while majority of other traders have stopped trading in that way & are cautious of a commodity price correction or retracement.

There are four types of divergence setups.

Example 1: Commodities Classic Bullish Divergence

A Bullish Divergence in the stochastic indicator & the commodity price is followed by a rise in commodity price.

Divergence Software - Bullish Divergence Commodity Trading Using Commodity Trading Software

When the commodity price is making new lows the Stochastic 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 commodities trading example above the commodity 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.

This setup is even stronger because there is combination of a divergence and then followed by a rise above the 20% level. This combines the Overbought and Oversold levels.

Example 2: Commodity Classic Bearish Divergence

A Bearish Divergence in the stochastic indicator & the commodity price is followed by a drop in commodity price.

Divergence Software - Bearish Divergence Commodity Trading Using Commodity Trading Software

When commodity price is making new highs but the Stochastic 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 over bought 80 level.

Example 3: Commodities Trading Hidden Bullish Divergence

This setup signifies a retracement in an upward trend. This is the best type of divergence to trade, because you're not trading a commodity price reversal, but you are trading within the direction of the Commodity Trading trend.

Divergence Software - Bullish Divergence Commodity Trading Using Commodity Trading Software

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

Example 4: Commodity Hidden Bearish Divergence

This setup signifies a retracement in a downwards trend.

Divergence Software - Bearish Divergence Commodity Trading Using Commodity Trading Software

This is the best type of divergence to trade, because you are not trading a commodity price reversal, but you are trading within the direction of the trend. This is best place to sell commodity, since it is even in a down commodity trend there is no need to wait for a confirmation signal, because you're selling in a downwards Commodity Trading trend.