Crude Oil Trading Divergence Oil Trading SETUPS SUMMARY
Classic Bearish - HH crude crude oil price, LH indicator - Indicates underlying weakness of a oil trend - Warning of a possible change in the oil trend from up to down.
Classic Bullish - LL crude crude oil price, HL indicator - Indicates underlying weakness of a oil trend - Warning of a possible change in the oil trend from down to up.
Hidden Bearish - LH crude crude oil price, HH indicator - Indicates underlying strength of a oil trend - Mainly found during corrective rallies in a downward crude oil trend.
Hidden Bullish - HL crude crude oil price, LL indicator - Indicates underlying strength of a oil trend - Occurs mainly during corrective declines in an upward crude oil trend.
Illustrations of the divergence terms:
M-shapes dealing with Crude Oil price highs
M-shapes
W-shapes dealing with Oil price lows
W-shapes
These are the shapes to look for when looking for when using these oil setups.
One of the best indicator for this oil setup is the MACD Crude Oil Technical Indicator - as a oil signal MACD divergence is a setup to enter a trade. But as with any signal there are certain precautions that have to be observed to make this oil signal a setup. Getting straight in to a trade as soon as you see this oil setup is not the best strategy. This setup should be used in combination with another technical indicator to confirm the direction of the crude oil trend. A good system to combine with is the moving average cross over system.
Be aware this oil setup on a smaller time frame is not so significant. When divergence is seen on a 15 minute chart it may or may not be very important as compared to the 4 hour chart time frame on MT4 platform.
If seen on a 60 minute chart, 4 hour chart, or daily chart time frame, then start looking for other factors to indicate when the crude crude oil price may react to the divergence.
This brings us to a key point when using this oil signal to enter a trade: on a higher time frame MACD divergence can be a fairly reliable indicator of a change in crude crude oil price direction. However, the big question is: WHEN? That is why getting straight in to a trade as soon as you see this oil setup is not always the best strategy.
Many investors get caught out by entering the oil market too soon when they see MACD divergence. In many cases, crude crude oil price has still got some momentum to continue in current direction. The investor who has jumped in too soon can only stare at screen in dismay as crude crude oil price shoots through his stop-loss taking him out.
If you simply look for this oil setup without any other considerations you will not be aligning yourself with the best odds, so to increase the odds of making a successful trade you should also look at other factors, specifically other indicators.
What other factors should you consider when using this Crude Oil setup?
1. Support level, Resistance levels and Oil Trading Fib levels on higher Oil Chart Time Frames
Another way to greatly increase the odds of a winning trade is to observe the higher chart time frames before opening an order based on the lower time frames.
If you observe that the hourly, 4 hour or daily Oil Trading chart has met a major resistance, support or Fibo level then the probability of a successful trade based on divergence on a lower timeframe at this point increases.
2. Reward to Risk Ratio: Oil Trading Money Management Rules
And finally, when looking for divergence, it is very important that you enter the trade correctly, so that you have a good risk/reward ratio & only open oil transactions that have more profit potential than what you are risking. If you understand how to enter a transaction properly, you can measure your risk/reward before you open a transaction. That way, you can only choose to open orders that offer a favorable ratio.
Finally, when used correctly & combined with other indicators to confirm this oil signal, divergence setup can offer huge profit potential.
