Divergence Strategy
Hidden divergence trading strategy is used as a possible sign for a gold market trend continuation after the xauusd trading price has retraced. It is a signal that the original gold trend is resuming. This is the best divergence setup to trade because it's in same direction as that of the continuing market trend.
Divergence trading strategy
This divergence trading setup happens when price is forming a higher low ( HL ), but the oscillator (indicator) is showing a lower low (LL). To remember them easily think of them as W-shapes on Chart patterns. It occurs when there is a retracement in an upwards Gold trend.
The examples illustrated and described below shows an image of this divergence trading setup, from the screen shot the xauusd trading price made higher low (HL) but the indicator made a lower low (LL), this shows that there was a divergence signal between the xauusd price & indicator. This signal shows that soon the xauusd market up gold trend is going to resume. In other words it shows this was just a retracement in an upwards gold trend.
Divergence trading strategy
This confirms that a retracement move is complete and indicates underlying strength of an upwards xauusd trend.
XAUUSD Hidden Bearish Divergence
This setup happens when price is forming a lower high ( LH ), but the oscillator is showing a higher high (HH). To remember them easily think of them as M-shapes on Chart patterns. It occurs when there is a retracement in a downward Gold trend.
The examples illustrated and described below shows an image of this gold trading setup, from the image the xauusd price made lower high (LH) but the indicator made a higher high (HH), this shows that there was a divergence between the xauusd price & the indicator. This shows that soon the xauusd market down gold trend is going to resume. In other words it shows this was just a retracement in a downwards trend.
Divergence trading strategy
This confirms that a retracement move is complete & indicates underlying strength of a downwards xauusd trend.
Other popular indicators used are CCI indicator (Commodity Channel Index), Stochastic Oscillator, RSI & MACD. MACD & RSI are the best technical indicators.
NB: Hidden divergence is the best type to trade because it gives a signal that is in the same direction with the current market trend, thus it has a high reward to risk ratio. It provides for the best possible entry.
However, a trader should combine this xauusd trading setup with another indicator like the stochastic oscillator or moving average and buy when the price is oversold, and sell when the price is overbought.
Combining Hidden XAUUSD Trading Divergence with Moving Average Gold Trading Crossover Strategy
A good indicator to combine these gold trading setups is the moving average indicator using the moving average crossover method. This will create a good trading strategy.
Moving Average Crossover Technique - Divergence trading strategy
In this divergence gold strategy, once the trading signal is given, a trader will then wait for the moving average cross over technique to give a buy/sell signal in same direction, if there is a bullish divergence set up between the xauusd trading price & indicator, wait for the moving average cross-over system to give an upwards crossover signal, while for a bearish divergence set-up wait for the moving average cross-over system to give a downwards bearish cross-over signal.
By combining this Divergence trading strategy with other indicators this way a trader will avoid whipsaws when it comes to trading with this xauusd trade signal.
Combining with Gold Fibonacci Retracement Levels
For this example we shall use an upward market trend. Gold Trading - We shall use MACD indicator.
Because the hidden divergence is just a retracement in an upwards gold trend we can combine this gold trading signal with most popular retracement tool that's the Fibonacci retracement levels. The example illustrated and explained below shows that when this xauusd trading setup appeared on the chart, xauusd trading price had just hit the 38.20% level. When xauusd price tested this level, this would have been a good level to place a buy order.
Divergence trading strategy set up
Combining with Gold Trading Fibonacci Expansion Levels
In the xauusd trading example above once the buy gold trade was placed, a trader would then need to calculate where to place take profit for this trade. To do this one would need to use the Gold Fib Expansion Levels.
The Fib expansion was drawn as shown on the trading chart as shown below.
Divergence trading strategy set up
For this example there were 3 take profit areas:
Fibo Expansion Level 61.8% - 131 pips profit
Fibonacci Expansion Level 100.00% - 212 pips profit
Fibo Expansion Level 161.8% - 337 pips profit
From this divergence trading strategy combined with Fibonacci would have provided a good strategy with a good amount of profit set using these take profit levels.
