Stochastic Oscillator Bullish Stock Indices Trading Divergence and Bearish Divergence Stock Indices
Divergence stock indices is one of the stock indices signals that can be generated when using the stochastic oscillator stock index technical indicator.
Divergence stock indices 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 index price in one way while the majority of other stock indices traders have stopped trading in that direction and are cautious of a stock index price correction or retracement.
There are four types of stock indices divergence trading setups
Example 1: Classic Stock Indices Trading Bullish Divergence
A Stock Indices Classic Bullish Divergence in the stochastic oscillator indicator & the stock index price is followed by a rise in stock index price.
Stochastic Oscillator Stock Indices Indicator Classic Stock Indices Trading Bullish Divergence
When the stock index price is making new lows the Stochastic 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 example above the stock index price set a new low but it was not coupled with a new low in the measure of Stochastic oscillator stock indices indicator, when 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 Trading 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 Over-bought 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 & the stock index price is followed by a drop in stock index price.
Stochastic Oscillator Stock Indices Indicator Classic Stock Indices Bearish Divergence
When stock index 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 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 Trading Bullish Divergence
Hidden Stock Indices Trading Bullish Divergence trade setup signifies a retracement in an upwards stock index 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 index price reversal, but you are trading within the direction of the Stock Indices trend.
Stochastic Oscillator Stock Indices Indicator Hidden Stock Indices Trading Bullish Divergence
Even though, the stochastic oscillator stock indices indicator made a lower low the stock index 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 index price down as indicated by the stochastic indicator, this was not reflected on the stock index price, and the stock index 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 signal, because you are buying in an upward stock index trend.
Example 4: Hidden Stock Indices Bearish Divergence
Hidden Stock Indices Trading Bearish Divergence trading setup signifies a retracement in a downwards trend.
Stochastic Oscillator Stock Indices Indicator Hidden Stock Indices Bearish Divergence
Hidden stock indices bearish divergence stock indices setup is the best type of divergence to trade, because you are not trading a stock index price trend reversal, but you're trading within the direction of the trend. This is the best place to open a sell stock indices trade, since it is even in a downward trend there is no need to wait for a confirmation stock indices signal, because you are selling in a downwards trend.
