Stochastic Oscillator Bullish Forex Divergence and Bearish Divergence Trading
Divergence in Stochastic Oscillator - Divergence forex trading is one of the forex trading signals that can be generated when using the stochastic oscillator technical indicator.
Divergence forex 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 forex price in one way while the majority of other forex traders have stopped trading in that direction and are cautious of a forex price correction or retracement.
There are 4 types of forex divergence trading setups
Example 1: Classic Forex Bullish Divergence
A Forex Classic Bullish Divergence in the stochastic oscillator indicator and the forex price is followed by a rise in forex price.
Stochastic Oscillator Indicator Classic Forex Bullish Divergence
When the forex price is making new lows the Stochastic indicator is not moving past its previous lows it is an indication that the downward trend is about to reverse and a bullish forex rally is likely to occur.
In the forex trading example above the forex 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 forex classic divergence trading setup.
Forex classic divergence trading setup is even stronger because there is combination of a divergence forex trade setup and then followed by a rise above the 20% indicator level. This combines the Over-bought and Oversold levels with this forex divergence trading setup.
Example 2: Classic Forex Bearish Divergence
A Classic Forex Bearish Divergence trading setup in the stochastic oscillator indicator and the forex price is followed by a drop in forex price.
Stochastic Oscillator Indicator Classic Forex Bearish Divergence
When forex price is making new highs but the Stochastic oscillator indicator is not moving beyond its previous high it is an indication the upward trend will reverse and that a forex bearish divergence trade setup will follow.
This classic forex bearish divergence trade setup is even stronger because there is a combination of a forex divergence with a dip below the overbought 80 level.
Example 3: Hidden Forex Bullish Divergence
Hidden Forex Bullish Divergence trade setup signifies a retracement in an upward trend. This forex hidden divergence trading setup is the best type of forex divergence trading setup to trade, because you are not trading a forex price reversal, but you are trading within the direction of the Forex trend.
Stochastic Oscillator Indicator Hidden Forex Bullish Divergence
Even though, the stochastic oscillator indicator made a lower low the forex price low was higher than the previous low (higher low). This means that even though the forex sellers made a good attempt to push forex price down as indicated by the stochastic indicator, this was not reflected on the forex price, and the price did not make a new low. This is the best place to open a buy forex trade, since it is even in an upward trend there is no need to wait for a confirmation forex trading signal, because you are buying in an upward Forex trend.
Example 4: Hidden Forex Bearish Divergence
Hidden Forex Bearish Divergence trading setup signifies a retracement in a downwards trend.
Stochastic Oscillator Indicator Hidden Forex Bearish Divergence
Hidden forex bearish divergence forex trading setup is the best type of divergence to trade, because you are not trading a forex price trend reversal, but you are 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 forex trading signal, because you are selling in a downward Forex trend.
