Stochastic Oscillator Bullish Divergence and Bearish Divergence Indices Trading

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

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

There are four types of stock divergence trading setups

Example 1: Classic Stock Indices Bullish Divergence

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

Stochastic Oscillator Indicator Classic Indices Bullish Divergence

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

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

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

Example 2: Classic Indices Bearish Divergence

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

Stochastic Oscillator Indicator Classic Indices Bearish Divergence

When stock trading price is making new highs but the Stochastic oscillator stock indicator is not moving beyond its previous high it is an indication the upward trend will reverse and that a indices trading bearish divergence trade setup will follow.

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

Example 3: Hidden Stock Indices Bullish Divergence

Hidden Indices Bullish Divergence trade setup signifies a retracement in an upward indices trend. This trade hidden divergence trading setup is the best type of stock trade divergence setup to trade, because you aren't trading a indices trading price reversal, but you're trading within the direction of the trend.

Stochastic Oscillator Indicator Hidden Indices Bullish Divergence

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

Example 4: Hidden Indices Bearish Divergence

Hidden Indices Bearish Divergence setup signifies a retracement in a down-wards trend.

Stochastic Oscillator Indicator Hidden Indices Bearish Divergence

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