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 gold price, HH indicator - Indicates under-lying momentum of a market trend - Mainly found during the corrective rallies in a downward trend.

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

Illustrations of the divergence setup 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

XAU/USD 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 setups.

One of the best indicator for this setup is the MACD - as a signal MACD divergence setup is a setup to open a trade. But as with any trading signal there are certain precautions and guidelines that have to be observed to make this signal a setup. Getting straight in to a trade as soon as you as the trader see this setup isn't the best strategy. This setup should be used in combination with another indicator to confirm the market direction of the price 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 when compared and analyzed to the 4 Hour chart timeframe on MT4 software.

If seen on a 60 minutes chart, 4 Hour chart, or day chart timeframe, then start looking for other factors & aspects to reflect when the price might react to the divergence.

This brings us to a key point and factor when using this trade signal to open a trade: on a higher time frame MACD divergence setup signal 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 trader whose opened a position too soon only can stare at and watch the screen in dismay as price moves through his stoploss order 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 chances of making a successful trade you as a gold trader should also look at other factors & aspects, specifically other indicators.

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

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

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

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

2. Reward to Risk Ratio: Gold Trading Equity Management Rules

And finally, when scanning for divergence, it's very crucial that you enter the Gold trade correctly, so that as you have a good risk/reward ratio & only open trade transactions that have more profit potential than what you're risking. If you understand how to enter a transaction properly, you as a trader can gauge your risk reward before you open a trade. That way, you can only select 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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