Divergence Software

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

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

There are Four types of divergences.

Example 1: Oil Classic Bullish Divergence

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

Divergence Software - Bullish Divergence Oil Trading Using Oil Software

When the crude oil price is making new lows the Stochastic indicator 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 the crude oil price set a new low but it was not coupled with a new low in the measure of Stochastic, when crude oil 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 & then followed by a rise above the 20% level. This combines the Over-bought and Oversold levels.

Example 2: Crude Oil Classic Bearish Divergence

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

Divergence Software - Bearish Divergence Oil Trading Using Oil Software

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

This set up is even stronger because there is a combination of a divergence with a dip below the overbought 80 level.

Example 3: Oil Hidden Bullish Divergence

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

Divergence Software - Bullish Divergence Oil Trading Using Oil Software

Even though, the stochastic oscillator 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, 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's no need to wait for a confirmation signal, because you are buying in an upward Oil Trading trend.

Example 4: Crude Oil Hidden Bearish Divergence

This setup signifies a retracement in a downwards trend.

Divergence Software - Bearish Divergence Oil Trading Using Oil Software

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