Stochastic Oscillator Bullish Stock Indices Divergence and Bearish Divergence Trading

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

Divergence Stock Indices trading 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 Stock Indices price in one way while the majority of other Stock Indices traders have stopped trading in that direction and are cautious of a Stock Indices price correction or retracement.

There are 4 types of Stock Indices divergence trading setups

Example 1: Classic Stock Indices Bullish Divergence

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

Stochastic Oscillator Indicator Classic Stock Indices Bullish Divergence

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

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

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

Example 2: Classic Stock Indices Bearish Divergence

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

Stochastic Oscillator Indicator Classic Stock Indices Bearish Divergence

When Stock Indices price is making new highs but the Stochastic oscillator Stock Indices indicator is not moving beyond its previous high it is an indication the upward Stock Indices trend will reverse and that a Stock 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 Stock Indices Bullish Divergence

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

Stochastic Oscillator Indicator Hidden Stock Indices Bullish Divergence

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

Example 4: Hidden Stock Indices Bearish Divergence

Hidden Stock Indices Bearish Divergence trading setup signifies a retracement in a downward Stock Indices trend.

Stochastic Oscillator Indicator Hidden Stock Indices Bearish Divergence

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