DIVERGENCE XAUUSD TRADING SETUPS SUMMARY

Classic Bearish - HH xauusd price, LH indicator - Indicates underlying weakness of a market trend - Warning of a potential reversal in the market trend from upto down.

Classic Bullish - LL xauusd price, HL indicator - Indicates underlying weakness of a market trend - Warning of a potential reversal in the market trend from down to up.

Hidden Bearish - LH xauusd price, HH indicator - Indicates under-lying strength of a market trend - Mainly found during corrective rallies in a downwards trend.

Hidden Bullish - HL xauusd price, LL indicator - Indicates underlying strength of a market trend - Occurs mainly during corrective declines in an upwards trend.

Illustrations of the divergence terms:

M shapes dealing with price highs

M Shapes Price Highs and W Shapes Price Lows - M Shape Gold Trading Divergence Pattern

M-shapes

W shapes dealing with price lows

XAUUSD Divergence Setups - M Shapes Gold Price Highs and W Shapes Gold Price Lows

W-shapes

These are the shapes to look for when using these set-ups.

One of the best indicator for this setup is the MACD - as a trading signal MACD divergence is a setup to open a trade position. But as with any signal there are certain precautions which have to be observed to make this signal a setup. Getting straight in to a trade as soon as you as a trader see this setup isn't the best strategy. This setup should be used in combination with another indicator to confirm the direction of the market trend. A good system to combine with is the Moving Average cross-over trading system.

Be aware this setup on a smaller time frame isn't so significant. When divergence is seen on a 15 minute chart it may or might not be very crucial as compared to the 4 Hour chart time frame on MetaTrader 4 platform.

If seen on a 60 minutes trading chart, 4 Hour chart, or daily chart time-frame, then start looking for other factors to indicate when the price might react to the divergence.

This brings us to a key point when using this signal to open a trade position: on a higher time frame MACD divergence can be a fairly reliable technical 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 xauusd set up is not always the best strategy.

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

If you simply look for this setup without any other considerations you will not be aligning yourself with the best odds, so to increase odds of making a successful trade you as a xauusd trader should also look at other factors, specifically other indicators.

What other factors should you consider when using this Gold trading setup?

1. Support level, Resistance levels & Gold Trading Fib levels on higher Gold Chart Time-Frames

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

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

2. Reward to Risk Ratio: Gold Trading Equity Management Guide-lines

And finally, when scanning for divergence, it is very crucial that you enter the trade correctly, so that you have a good risk/reward ratio and only open trade transactions that have more profit potential than what you're risking. If you understand how to enter a transaction properly, you can gauge your risk reward before you open a trade position. That way, you can only choose to open orders that offer a favorable ratio.

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

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