Divergence Technical Analysis in Commodity Trading

Divergence technical analysis set-up is one of the commodity trading signals that can be generated when using the divergence technical analysis stochastic oscillator.

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

There are four types of divergence setups which can be traded using this divergence technical analysis.

Example 1: Commodity Classic Bullish Divergence

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

stochastic divergence technical analysis

When the commodity price is making new lows the stochastic divergence technical analysis 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 stochastic divergence technical analysis setup the commodity price set a new low but it was not coupled with a new low in the measure of Stochastic oscillator, when price formed a new low then the indicator should have followed suit, but the stochastic indicator did not therefore the stochastic divergence technical analysis setup.

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

Example 2: Commodities Classic Bearish Divergence

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

stochastic divergence technical analysis

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

This stochastic divergence technical analysis setup is even stronger because there is a combination of a divergence trading signal with a dip below the over bought 80 level.

Example 3: Commodity Trading Hidden Bullish Divergence

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

stochastic technical indicator divergence technical analysis

Even though, the stochastic oscillator in this stochastic divergence technical analysis setup 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 divergence technical analysis, 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: Commodities Hidden Bearish Divergence

This setup signifies a retracement in a downwards trend.

stochastic technical indicator divergence technical analysis

This is the best type of divergence to trade with this stochastic divergence technical analysis setup, because you're not trading a commodity price trend reversal, but you're trading within the direction of the trend. This is the 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 are selling in a downward trend.