Stochastic Oscillator Divergence Technical Indicator XAUUSD

Divergence trading is one of the xauusd 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 and is likely to reverse. It means that the last buyers or last sellers are pushing the gold price in one way while the majority of other traders have stopped trading in that way & are cautious of a gold price correction or retracement.

There are Four types of divergence set ups that can be traded using this divergence technical indicator.

Example 1: XAUUSD Classic Bullish Divergence

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

stochastic divergence technical indicator

When the gold price is making new lows the stochastic divergence indicator is not moving past its previous lows it is an indication that the down xauusd trend is about to reverse and a bullish rally is likely to occur.

In the xauusd example above the gold 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 setup.

This divergence 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: Gold Classic Bearish Divergence

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

stochastic divergence technical indicator

When gold price is making new highs but the stochastic divergence indicator is not moving beyond its previous high it is an indication the up xauusd trend will reverse and that a bearish divergence will follow.

This setup is even stronger because there is a combination of a divergence set-up with a dip below the over bought 80 level.

Example 3: XAUUSD 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're not trading a gold price trend reversal, but you're trading within the direction of the XAUUSD Trading market trend.

stochastic divergence technical indicator

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

Example 4: Gold 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 gold price trend reversal, but you're trading within the direction of the market trend. This is the best place to sell the xauusd instrument, since it is even in a down xauusd trend there's no need to wait for a confirmation signal, because you're selling in a downwards trend.