Trade Stock Indices

Learn Stock Indices Trading

Divergence Technical Analysis in Indices Trading

Divergence technical analysis setup is one of the indices trading 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 and is likely to reverse. It means that the last buyers or last sellers are pushing the stock indexes price in one way while the majority of other indices traders have stopped trading in that way and are cautious of a indices price correction or retracement.



There are four types of divergences that can be traded using this divergence technical analysis.

Example 1: Indices Trading Classic Bullish Divergence


A Bullish Divergence in the stochastic and the stock indexes price is followed by a rise in indices price.

Indices Trading Classic Bullish Divergence

stochastic divergence technical analysis


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



In the stock indexes trading example above stochastic divergence technical analysis setup the stock indexes price set a new low but it was not coupled with a new low in the measure of Stochastic oscillator, when stock indexes 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 Overbought and Oversold levels.


Example 2: Indices Trading Classic Bearish Divergence


A Bearish Divergence in the stochastic and the stock indexes price is followed by a drop in indices price.

Indices Trading Classic Bearish Divergence

stochastic divergence technical analysis


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


This stochastic divergence technical analysis setup is even stronger because there is a combination of a divergence with a dip below the overbought 80 level.


Example 3: Indices Trading Hidden Bullish Divergence


This stochastic divergence technical analysis setup signifies a retracement in an upward trend. This is the best type of divergence to trade, because you are not trading a indices price indices trend reversal, but you are trading within the direction of the Indices market trend.

Indices Trading Hidden Bullish Divergence

stochastic indicator divergence technical analysis


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



Example 4: Indices Trading Hidden Bearish Divergence


This setup signifies a retracement in a downward trend.

Indices Trading Hidden Bearish Divergence

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 indices price indices trend reversal, but you are trading within the direction of the indices trend. This is the best place to sell indices, since it is even in a down indices trend there is no need to wait for a confirmation signal, because you are selling in a downward trend.

 

Forex Seminar Gala


Forex Seminar




Broker