Divergence Trading Setups Summary - Gold TRADING

Classic Bearish Divergence Setup - HH price, LH indicator - Indicates under-lying weakness of a price trend - Warning of a possible reversal in the market trend from upward to downward.

Classic Bullish Divergence Setup - LL price, HL indicator - Indicates under-lying weakness of a trend - Warning of a possible reversal in the market trend from downward to upward.

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

Hidden Bullish Divergence - HL price, LL indicator - Indicates the underlying strength of a trend - Occurs mainly during corrective declines in an upward trend.

Illustrations of the divergence terms:

M-shapes dealing with price highs

Divergence Gold Trading Setups Explained - XAUUSD Divergence Trade Setups Tutorial

M shapes: Divergence Trading Terms

W-shapes dealing with price lows

Divergence Gold Trading Setups Summary - XAUUSD GOLD TRADING DIVERGENCE SETUPS

W shapes: Divergence Trading Terms

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

One of the best indicators for using with this divergence trading setup is the MACD Indicator - as a divergence trading signal, MACD divergence is a high probability set-up to enter a trade. But as with any signal there are certain parameters that have to be observed to make this trading signal a high probability setup.

Getting straight into a trade position as soon as you as a trader see this setup is not the best strategy to use. This divergence trading setup should be used in combination with another indicator to confirm the direction of the XAUUSD price trend. A good system to combine this setup with is the MA crossover strategy.

Be aware this setup on a smaller timeframe isn't so significant. When divergence is seen on a 15 minute price chart it might or may not be very important as compared to the 4 hour time frame or the 1 day timeframe.

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

This brings us to a key point when using this signal to enter a trade: on a higher time frame MACD divergence can be a fairly reliable indicator of a change in price direction. However, the large question is: WHEN? That is why getting straight in to a trade as soon as you see this divergence setup isn't always the best strategy.

Many traders get caught out by entering the market too soon when they see MACD divergence setup. In many cases, price has still got some momentum to continue in the prevailing market direction. The trader who has jumped in too soon can only stare at the screen in dismay as price moves through his stoploss order taking him out.

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

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

1. Support, Resistance and Fibonacci levels on higher timeframesAnother way to greatly increase the chances of a winning trade is to observe the higher chart timeframes before opening an order based on the lower time frame.

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

2. Reward to risk ratioAnd finally, when looking for divergence trading set-ups, it is very crucial that you enter the trade correctly, so that you have a good risk: reward ratio & only open trades which have got more profit potential than what you are risking. If you understand how to open a trade transaction properly, you can measure your risk : reward ratio before you open a trade transaction. That way, you can only choose to open trading orders that offer a favorable risk:reward ratio.

Finally, when used correctly and combined with other indicators to confirm this divergence trading signal, divergence trading set-up can offer a good trading method for trading XAUUSD metal.

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Divergence Trading Setups Summary - Gold TRADING

Illustrations of the divergence terms:

M-shapes dealing with price highs

W-shapes dealing with price lows