Oil Trading Divergence Oil Trading SETUPS SUMMARY
Oil Trading Classic Bearish Divergence - HH oil price, LH indicator - Indicates underlying weakness of a oil trend - Warning of a possible change in the oil trend from up to down.
Crude Oil Trading Classic Bullish Divergence - LL oil price, HL indicator - Indicates underlying weakness of a oil trend - Warning of a possible change in the oil trend from down to up.
Oil Trading Hidden Bearish Divergence - LH oil price, HH indicator - Indicates underlying strength of a oil trend - Mainly found during corrective rallies in a downward oil trend.
Crude Oil Trading Hidden Bullish Divergence - HL oil price, LL indicator - Indicates underlying strength of a oil trend - Occurs mainly during corrective declines in an upward oil trend.
Divergence Forum - Illustrations of the divergence terms:
M-shapes dealing with Oil price highs
M-shapes - Divergence Forum
W-shapes dealing with Crude Oil price lows
W-shapes - Divergence Forum
These are divergence shapes to look for when using these oil trading setups.
One of the best oil indicator for this crude oil trading setup is the MACD Indicator - as a oil signal MACD divergence is a setup to enter a oil trade. But as with any signal there are certain precautions that have to be observed to make this oil signal a set-up. Getting straight in to a trade as soon as you see this crude oil setup isn't the best strategy. This setup should be used in combination with another crude oil technical indicator to confirm the direction of the oil trend. A good system to combine with is the moving average cross over system.
Be aware this crude oil trading setup on a smaller time-frame is not so significant. When divergence is seen on a 15 min chart it might or may not be very important as compared to the 4 hour chart time-frame on MT4 crude oil software.
If divergence setup seen on a 60 minute chart, 4 hour chart, or daily chart timeframe, then start looking for other factors to indicate when the crude oil price may react to the divergence.
This brings us to a key point when using this divergence setup signal to enter a trade: on a higher time frame MACD divergence can be a fairly reliable indicator of a change in crude oil price direction. However, the big question is: WHEN? That is why getting straight in to a trade as soon as you see this crude oil setup is not always the best strategy.
Many oil traders get caught out by entering the crude oil market too soon when they see MACD divergence. In many cases, crude oil price has still got some momentum to continue in the current direction. The investor who has jumped in too soon can only stare at the screen in dismay as crude oil price shoots through his stop-loss taking him out.
If you simply look for this divergence trading setup without any other considerations you will not be aligning yourself with the best odds, so to increase the odds of making a successful trade you should also look at other factors, specifically other oil technical indicators.
What other factors should you consider when using this Oil trading setup?
1. Support level, Resistance levels & Oil Trading Fibonacci levels on higher Oil Chart Time Frames
Another way to greatly increase the odds of a winning trade is to observe the higher chart time-frames before opening an order based on the lower time-frames.
If you observe that the hourly, 4 hour or daily Oil Trading chart has met a major resistance, support or Fibonacci level then the probability of a successful trade based on divergence on a lower timeframe at this point increases.
2. Reward to Risk Ratio: Oil Trading Money Management Rules
And finally, when looking for divergence, it is very important that you enter the trade correctly, so that you have a good risk/reward ratio & only open oil trade transactions which have more profit potential than what you are risking. If you understand how to enter a trade properly, you can measure your risk/reward before you open a transaction. That way, you can only select to open orders that offer a favorable ratio.
Finally, when used correctly and combined with other oil technical indicators to confirm this oil trading signal, divergence set-up can offer huge profit potential.
