Divergence Setups

Divergence is one of the trade set ups used by traders. It involves looking at a gold chart and one more technical 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 & momentum.

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

Example of a Divergence Trade Setup:

In the chart below we identify two chart points, point A & 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 & B.

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

How to Spot XAUUSD Trading Divergence on Chart and How Do I Trade Divergence on Chart

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 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 check for the following:

HH = Higher High - two highs but the last is higher
LH = Lower High - 2 highs but last one is lower
HL=Higher Low : 2 lows but last one is higher
LL = Lower Low- two lows but last one is lower

First let's look at the illustrations of these terms:

M-shapes dealing with price Highs

How Do I Trade Various Types of Divergence Signal?

W Shapes dealing with XAUUSD price lows

Higher Low Lower Low Divergence Trading - Spotting Divergence Trader Strategies

Example of M-Shapes

How Do I Read Divergence Trading in XAUUSD Trading?

Examples of W Shapes

W shapes on Chart

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 set-ups.

The two types are:

Classic Gold Trading Divergence
Hidden Gold Trading Divergence

These two setups are described on following guides below

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