Divergence Setups

Divergence is one of the trade set ups used by traders. It involves looking at a gold chart and one more indicator. For our example we shall use the MACD indicator.

To spot this trading setup find two chart points at which price makes a new swing high or a new swing low but MACD indicator doesn't, indicating a divergence between price and momentum.

To look for divergence we look for two chart points, two highs that form an M-shape on the chart or 2 lows that form a W-Shape on the chart. Then look for the same M-shape or WShape on the indicator you use to trade.

Example of a Divergence Trade Setup:

In the chart below we identify two chart points, point A and point B (swing highs). These two points form an M-shape on the price chart.

Then using MACD indicator we check highs made by MACD, these are highs which are directly below Chart points A and B.

We then draw one line on the chart and another line on the MACD indicator.

Drawing Divergence Gold Trading Lines

The chart above highlights example of one of the four types of divergences, the one above is known as hidden bearish divergence, one of the best type to trade. Types of divergences are covered in the next tutorial.

How to spot divergence

In order to spot Gold diverging signal we look for the following:

• HH=Higher High- two highs but the last one is higher
• LH= Lower High- two highs but the last one is lower
• HL=Higher Low- two lows but the last one is higher
• LL= Lower Low- two lows but the last one is lower

First let us look at the illustrations of these terms:

M-shapes dealing with price Highs

W Shapes dealing with XAUUSD price lows

Example of M Shapes

Examples of W Shapes

Now that you have learned the divergence terms that are used to explain set-up. Let us look at the two types of divergences and how to trade these chart setups.

There two types are:

1. Classic Gold Trading Divergence

2. Hidden Gold Trading Divergence

These 2 setups are described on following tutorials below