DIVERGENCE Gold TRADING SETUPS SUMMARY

XAUUSD Classic Bearish Divergence Setup - HH price, LH indicator - Indicates underlying weakness of a trend - Warning of a possible shift in the trend from upward to downwards.

Gold Classic Bullish Divergence Setup - LL trading price, HL indicator - Indicates underlying weakness of a trend - Warning of a possible shift in the trend from downward to upwards.

Gold Hidden Bearish Divergence Pattern - LH price, HH indicator - Indicates underlying strength of a market trend - Mainly found during corrective rallies in a downwards trend.

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

Divergence Community Forum - Illustrations of the divergence terms:

M-shapes dealing with XAUUSD price highs

Trade Divergence Forum - Divergence Setups Summary - How to Trade Divergence Setups

M shapes - Divergence Forum

W-shapes dealing with price lows

Gold Trade Divergence Forum - Divergence Trading Setups Summary - How Do I Trade Divergence Setups?

W-shapes - Divergence Forum

These are divergence shapes to look for when using these trading setups.

One of the best indicator for this trading 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 gold trading signal a setup. Getting straight in to a trade position as soon as you see this trading setup is not 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 method.

Be aware this trading 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 important as compared to the 4 H chart timeframe on MetaTrader 4 software.

If divergence setup seen on a 60 minute chart, 4 Hour chart, or daily chart timeframe, then begin looking for other factors to indicate when the price may react to the divergence.

This brings us to a crucial point when using the divergence setup signal to enter a trade position: on a higher timeframe 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 trading setup is not always the best trading strategy.

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

If you simply look for this divergence 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 should also look at other factors, specifically other technical indicators.

What other factors should you consider when using this trading set-up?

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

Another way to significantly increase the odds of a winning trade is to observe the 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 chart time frame at this point increases.

2. Reward Risk Ratio: Gold Trade Money Management Rules

And finally, when looking 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 positions that have more profit potential than what you're risking. If you understand how to open a trade position properly, you as a xauusd trader can gauge your risk reward before you open a trade position. That way, you can only choose to open orders which offer a favorable ratio.

Finally, when used correctly and combined with other indicators to confirm this gold signal, divergence can offer huge profit potential.

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