Commodities Trading Divergence Commodities Trading SETUPS SUMMARY

Classic Bearish - HH price, LH indicator - Indicates the underlying weakness of a trend - Warning of a possible change in the commodity trend from up to down.

Classic Bullish - LL price, HL indicator - Indicates the underlying weakness of a trend - Warning of a possible change in the commodity trend from down to up.

Hidden Bearish - LH price, HH indicator - Indicates the underlying strength of a trend - Mainly found during corrective rallies in a downward trend.

Hidden Bullish - HL price, LL indicator - Indicates the underlying strength of a trend - Occurs mainly during corrective declines in an up-ward trend.

Illustrations of the divergence terms:

M-shapes dealing with price highs

M-shapes

W-shapes dealing with price lows

W-shapes

These are the shapes to look for when using these commodity setups.

One of the best indicator for this commodity setup is the MACD Technical Indicator - as a trading signal MACD divergence is a setup to enter a trade. But as with any trading signal there are certain precautions which have to be observed to make this trading signal a setup. Getting straight in to a trade as soon as you see this commodity setup isn't the best strategy. This setup should be used in combination with another technical indicator to confirm the direction of the trend. A good system to combine with is the moving average crossover system.

Be aware this commodity setup on a smaller timeframe isn't 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 commodities software.

If seen on a 60 minute chart, 4 hour chart, or daily chart timeframe, then begin looking for other factors to indicate when the price may react to the divergence.

This brings us to a key point when using this signal to enter a trade: on a higher time frame MACD divergence can be a fairly reliable indicator of a change in price direction. However, the big question is: WHEN? That is why getting straight in to a trade as soon as you see this commodity setup isn't always the best strategy.

Many investors get caught out by entering the commodity market too soon when they see MACD divergence. In many cases, price has still got some momentum to continue in the current direction. The investor who has jumped in too soon can only stare at the screen in dismay as price shoots through his stop loss taking him out.

If you simply look for this commodity 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 Commodity setup?

1. Support level, Resistance levels and Commodities Trading Fibonacci levels on higher Commodities Chart Time Frames

Another way to greatly increase the odds of a winning trade is to observe higher chart timeframes before opening an order based on the lower time frames.

If you observe that the hourly, 4 hour or daily Trade chart has met a major resistance, support or Fibonacci level then probability of a successful trade based on divergence on a lower time frame at this point increases.

2. Reward to Risk Ratio: Commodities Trading Money Management Rules

And finally, when looking for divergence, it's very important that you enter the trade correctly, so that you have a good risk/reward ratio & only open commodity transactions thatwhich have more profit potential than what you're 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 select to open orders which offer a favorable ratio.

Finally, when used correctly & combined with other indicators to confirm this signal, divergence setup can offer huge profit potential.