Stochastic Oscillator Bullish Stock Indices Divergence & Bearish Divergence Trading

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

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

There are 4 types of Stock Indices divergence setups

Example 1: Classic Indices Bullish Divergence Setup

A Indices Classic Bullish Divergence in the stochastic oscillator indicator and the Indices price is followed by a rise in price.

Stochastic Oscillator Classic Indices Bullish Divergence

When the Indices price is making new lows the Stochastic indicator is not moving past its previous lows it is an indication that the downwards trend is about to reverse & a bullish Stock Indices rally is likely to occur.

In the Indices above example the Indices price set a new low but it was not coupled with a new low in the measure of Stochastic oscillator indicator, when price formed a new low then the stochastic indicator should have followed suit, but the stochastic indicator did not therefore the Stock Indices classic divergence setup.

Stock Index classic divergence setup is even stronger because there is combination of a divergence Indices trade setup and then followed by a rise above the 20% indicator level. This combines the Overbought and Oversold levels with this Stock divergence setup.

Example 2: Classic Indices Bearish Divergence Setup

A Classic Indices Bearish Divergence setup in the stochastic oscillator indicator and the Indices price is followed by a drop in price.

Stochastic Oscillator Classic Indices Bearish Divergence

When price is making new highs but the Stochastic oscillator indicator is not moving beyond its previous high it's an indication the upwards trend will reverse & that a Indices bearish divergence trade setup will follow.

This classic Stock Indices bearish divergence trade setup is even stronger because there is a combination of a Stock Indices divergence with a dip below the overbought 80 level.

Example 3: Hidden Indices Bullish Divergence Setup

Hidden Indices Bullish Divergence trade setup signifies a retracement in an upwards trend. This Stock Index hidden divergence setup is the best type of Stock Indices divergence setup to trade, because you are not trading a Indices price reversal, but you're trading within the direction of the market trend.

Stochastic Oscillator Hidden Indices Bullish Divergence

Even though, stochastic oscillator indicator made a lower low the Indices price low was higher than the prior low (higher low). This means that even though the Indices sellers made a good attempt to push Stock Indices price down as indicated by the stochastic indicator, this was not reflected on the Indices price, & the price did not make a new low. This is the best place to open a buy Stock Index trade, since it is even in an upwards trend there is no need to wait for a confirmation signal, because you are buying in an upwards trend.

Example 4: Hidden Indices Bearish Divergence Setup

Hidden Indices Bearish Divergence setup signifies a retracement in a downwards trend.

Stochastic Oscillator Hidden Indices Bearish Divergence

Hidden Indices bearish divergence Stock Indices setup is the best type of divergence to trade, because you are not trading a Indices price trend reversal, but you're trading within the direction of the market trend. This is the best place to open a sell trade, since it is even in a downwards trend there is no need to wait for a confirmation signal, because you are selling in a downwards trend.