Hidden Bullish and Oil Hidden Bearish Divergence Oil Trading

Hidden divergence is used as a possible sign for a oil trend continuation after the crude oil price has retraced. It's a signal that the original oil trend is resuming. This is the best setup to trade because it is in same direction as that of the continuing market trend.

Oil Hidden Bullish Divergence

This setup happens when crude oil trading price is making a higher low (HL), but the oscillator (indicator) is showing a lower low (LL). To remember them easily think of them as W-shapes on Chart patterns. It occurs when there is a retracement in an upwards Oil Trading trend.

The example explained below shows an image of this oil setup, from the image the crude oil price made higher low (HL) but the indicator made a lower low (LL), this shows that there was a diverging signal between the crude oil price and indicator. This signal shows that soon the crude oil market up oil trend is going to resume. In other words it shows this was just a retracement in an upwards oil trend.

This confirms that a retracement move is complete & indicates underlying strength of an upwards oil trend.

Crude Oil Hidden Bearish Divergence

This setup happens when crude oil trading price is making a lower high (LH), but the oscillator is showing a higher high (HH). To remember them easily think of them as M-shapes on Chart patterns. It occurs when there is a retracement in a downward Oil Trading trend.

The example explained below shows an image of this oil setup, from the image the crude oil price made a lower high (LH) but the indicator made a higher high (HH), this shows that there was a divergence between the crude oil price & the indicator. This shows that soon the crude oil market down oil trend is going to resume. In other words it shows this was just a retracement in a downward trend.

This confirms that a retracement move is complete & indicates underlying strength of a downward oil trend.

Other popular technical indicators used are Commodities Channel Index indicator (CCI), Stochastic Oscillator, RSI & MACD. MACD and RSI are the best indicators.

NB: Hidden divergence is the best type to trade because it gives a signal that is in the same direction with the current market trend, thus it has a high reward to risk ratio. It provides for the best possible entry.

However, a trader should combine this crude oil trading setup with another indicator like the stochastic oscillator or moving average and buy when oil is oversold, and sell when oil is overbought.

Combining Hidden Divergence with Moving Average Crossover Method

A good indicator to combine these oil trading set ups is the moving average indicator using the moving average crossover method. This will create a good trading strategy.

Moving Average Crossover Technique

In this strategy, once the signal is given, a trader will then wait for the moving average cross over method to give a buy/sell oil signal in the same direction, if there is a bullish divergence set up between the crude oil price and indicator, wait for the moving average crossover system to give an upwards cross over signal, while for a bearish diverging setup wait for the moving average crossover system to give a downward bearish crossover signal.

By combining this oil signal with other technical indicators this way one will avoid whip-saws when it comes to trading this oil signal.

Combining with Oil Trading Fib Retracement Levels

For this example we shall use an upward market trend. We shall use MACD indicator.

Because the hidden divergence is just a retracement in an upward oil trend we can combine this oil signal with the most popular retracement tool that is the Fibonacci retracement levels. The example explained below shows that when this crude oil set up appeared on chart, crude oil price had just hit the 38.2% level. When crude oil price tested this level, this would have been a good level to set a buy order.

Combining with Oil Fibonacci Expansion Levels

In the crude oil trading example above once the buy oil trade was placed, a trader would then need to calculate where to place the take profit for this trade. To do this a trader would need to use the Crude Oil Fib Expansion Levels.

The Fibo expansion was drawn as shown and illustrated on the chart as shown below.

For this example there were 3 take profit levels:

Expansion Level 61.80% - 131 pips profit

Expansion Level 100.00% - 212 pips profit

Expansion Level 161.80% - 337 pips profit

From this strategy combined with Fibo would have provided a good strategy with a good amount of profit set using these take profit areas.