Crude light divergence this morning indicated that the market would move down. First, there was typical divergence with price making higher highs and the stochastic making a lower high. The TradersHelpDesk ADX magenta peak was simply icing on the cake as it indicated that price would go down to the Average True Range Stop that is built into the TradersHelpDesk Trend ATR indicator. Then price makes a lower high in price and a higher high in the Stochastic. This time, the TradersHelpDesk ADX signaled early to expect the retracement to the ATR.
Crude Light Divergence
The first divergence indicated on the chart show that price should go down (yellow line on the chart below). Then after the congestion area forms (plus sign with the white congestion dots below price), price retests the TradersHelpDesk ATR (plus sign) and fails to break through it. Price moves down, forms a magenta peak on the TradersHelpDesk ADX indicator indicating a retracement to the ATR again. When price retraces up to the ATR, another divergence is formed (white line on the chart below). This is the absolute best place for a short on Crude (in my opinion of course) because your risk is low and price should move down with momentum. While it did take a few bars to come in, price did move down about twenty cents, which isn’t bad for an early morning trade.
In this case, if trading the Crude light divergence, since the 2-hour binary options do not begin until 8am New York time, the trader would need to use the futures for trading the early morning move.