Divergence Technical Analysis in Oil Trading

Divergence technical analysis set-up is one of the oil 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 & is likely to reverse. It means that the last buyers or last sellers are pushing the crude oil price in one way while the majority of other oil traders have stopped trading in that way and are cautious of a oil price correction or retracement.

There are 4 types of divergences which can be traded using divergence technical analysis.

Example 1: Crude Oil Trading Classic Bullish Divergence

A Bullish Divergence in the stochastic trading indicator & crude oil price is followed by a rise in oil price.

stochastic divergence technical analysis

When the crude oil price is making new lows the stochastic divergence technical analysis is not moving past its previous lows it is an indication that the down oil trend is about to reverse & a bullish rally is likely to occur.

In the crude oil trading example above stochastic divergence technical analysis setup the crude oil price set a new low but it was not coupled with a new low in the measure of Stochastic oscillator, when crude oil 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 and then followed by a rise above the 20% level. This combines the Over-bought & Oversold levels.

Example 2: Oil Trading Classic Bearish Divergence

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

stochastic divergence technical analysis

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

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

Example 3: Crude Oil Hidden Bullish Divergence

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

stochastic indicator divergence technical analysis

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

Example 4: Oil Trading Hidden Bearish Divergence

This setup signifies a retracement in a downwards trend.

stochastic indicator divergence technical analysis

This is the best type of divergence to trade with this stochastic divergence technical analysis setup, because you are not trading a oil price oil trend reversal, but you are trading within the direction of the oil trend. This is the best place to sell oil, since it is even in a down oil trend there is no need to wait for a confirmation signal, because you are selling in a downwards trend.