Divergence Setups Trading XAUUSD Using Divergence Setup

Divergence is one of the trade transaction setups used by Gold traders to analyze prices of Gold & try to predict the next likely direction of these xauusd gold prices. It involves looking at the XAUUSD Gold price chart & one more indicator. For our example we shall use the MACD technical indicator.

To spot this divergence trading pattern find 2 chart points at which price makes and forms a new swing high or a new swing low but MACD indicator does not, indicating there's a divergence between the price & the momentum.

To search for divergence trading setups we look for 2 chart points, two highs that form an M-Shape on the XAUUSD Gold price chart or 2 lows which form a W-Shape on the Gold price chart. Then look for the same M-Shape or W Shape on the indicator which you use to trade.

Example of a XAUUSD Price Divergence Setup:

In the XAUUSD Gold chart below we identify 2 chart points, point A and point B (swing highs). These 2 points form an M-Shape on the price chart.

Then using MACD indicator we check the highs made by MACD indicator, these are the highs that are directly below Chart points A and B.

We then draw one line on the Gold chart & another line on the MACD indicator as shown below.

Divergence Gold Setups Trading Gold Using Divergence Setup

Gold Trading - Divergence Setup - Drawing Divergence Lines

XAUSUD price chart above shows an example of one of the 4 types of divergence trading set-ups, the one above is known as hidden bearish divergence, one of the best types to trade. Different types of divergence trading setup patterns are discussed in the next trading tutorial.

How to spot divergence Setup

In order to spot XAUUSD Gold divergence signal we check for the following:

HH = Higher High - 2 highs but last one is higher, LH = Lower High - two highs but the last one is lower, HL = Higher Low - two lows but the last is higher, LL = Lower Low - 2 lows but last one is lower

First let's look at the explanations of these trading terms:

M-shapes dealing with price Highs

Divergence Gold Setups

W-Shapes dealing with price lows

Divergence Gold Setups - Trade Gold Using Divergence Setups

These concepts above are explained below using Gold price charts and MACD.

Example of M Shapes on XAUUSD Price Charts

Divergence Gold Setups - How to Trade Divergence Gold Signals on XAUUSD Charts

Example of W Shapes on Gold Price Charts

Divergence Gold Setups Explained - How to Use Divergence Setups

Now that you as a trader have learned the divergence trading terms that are used to explain the divergence trading patterns. Let's look at the 2 types of divergence setups and how to trade these set-ups on XAUUSD price charts.

There 2 types are of divergence trading setups:

Classic Divergence
Hidden Divergence Setup

These 2 divergence trading setups are expounded on the next courses.

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