Hidden Bullish and Gold Trading Hidden Bearish Divergence Gold Trading

Hidden divergence is used as a possible sign for a gold trend continuation after the xauusd price has retraced. It is a signal that the original gold trend is resuming. This is the best setup to trade because it is in the same direction as that of the continuing market trend.

XAUUSD Trading Hidden Bullish Divergence

This setup happens when xauusd price is making 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 upward Gold trend.

The example illustrated and explained below shows an image of this gold trading setup, from the screenshot the xauusd price made a higher low (HL) but the indicator made a lower low (LL), this shows that there was a diverging signal between the xauusd price and 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 upward gold trend.

This confirms that a retracement move is complete and indicates underlying strength of an upward xauusd trend.

XAUUSD Trading Hidden Bearish Divergence

This setup happens when xauusd price is making 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 example illustrated and explained below shows an image of this gold trading setup, from the screenshot the xauusd price made a lower high (LH) but the indicator made a higher high (HH), this shows that there was a divergence between the xauusd price and 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 downward trend.

This confirms that a retracement move is complete and indicates underlying strength of a downward xauusd trend.

Other popular indicators used are CCI indicator (Commodity Channel Index), Stochastic Oscillator, RSI and MACD. MACD and RSI are the best 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 gold trader should combine this xauusd trading setup with another indicator like the stochastic oscillator or moving average and buy when gold is oversold, and sell when gold is overbought.

Combining Hidden Divergence with Moving Average Crossover Method

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 Method

In this strategy, once the signal is given, a gold trader will then wait for the moving average crossover method to give a buy/sell gold signal in the same direction, if there is a bullish divergence setup between the xauusd price and indicator, wait for the moving average crossover system to give an upward crossover signal, while for a bearish diverging setup wait for the moving average crossover system to give a downward bearish crossover signal.

By combining this gold signal with other indicators this way one will avoid whipsaws when it comes to trading this gold signal.

Combining with Fibonacci Retracement Levels

For this example we shall use an upward market trend. We shall use the MACD indicator.

Because the hidden divergence is just a retracement in an upward gold trend we can combine this gold signal with the most popular retracement tool that is the Fibonacci retracement levels. The example illustrated and explained below shows that when this xauusd trading setup appeared on the chart, the xauusd price had just hit the 38.2% level. When xauusd price tested this level, this would have been a good level to place a buy order.

Combining with Fibonacci Expansion Levels

In the xauusd trading example above once the buy gold trade was placed, a gold trader would then need to calculate where to take profit for this trade. To do this one would need to use the Fibonacci Expansion Levels.

The Fibonacci expansion was drawn as shown on the chart as shown below.

For this example there were three take profit levels:

Expansion Level 61.8% - 131 pips profit

Expansion Level 100.0% - 212 pips profit

Expansion Level 161.8% - 337 pips profit

From this strategy combined with Fibonacci would have provided a good strategy with a good amount of profit set using these take profit levels.