Divergence Setups Trading XAUUSD Using Divergence Setup

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

To spot this divergence trading setup find two chart points at which price makes a new swing high or a new swing low but MACD indicator does not, indicating there is a divergence between the price & the momentum.

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

Example of a XAUUSD Price Divergence Setup:

In the XAUUSD chart below we identify two chart points, point A and point B (swing highs). These two points form an M-shape on the market 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 & B.

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

Gold Trading - Divergence Trading Setup - Drawing Divergence Lines

XAUSUD price chart above shows an example of one of the four 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 setups are covered in the next lesson.

How to spot divergence Trading Setup

In order to spot XAUUSD 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 illustrations of these trading terms:

M-shapes dealing with price Highs

W-Shapes dealing with price lows

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

Example of M Shapes on XAUUSD Price Charts

Example of W Shapes on Gold Price Charts

Now that you have learned the divergence trading terms that are used to explain the divergence trading setups. Let us look at the two types of divergences and how to trade these set-ups on XAUUSD price charts.

There two types are of divergence trading setups:

• Classic Divergence
• Hidden Divergence Setup

These two divergence trading setups are explained on the next courses.

Learn More Courses and Topics:

• What's a Gold Morning Star Candlestick in XAU USD?
• How to Open MetaTrader 4 Gold Demo Practice Account
• Creating a Gold Strategy To Trade XAUUSD with
• How to Trade XAUUSD with a Gold Standard Account
• Chaikins Money Flow XAU USD Indicator Analysis
• How to Register Real Account XAUUSD
• Is Aroon Oscillator Leading or Lagging Technical Indicator
• Linear Regression Slope XAUUSD Indicator
• How Do You Trade with Gold Signals & Expert Advisor EAs?
• MetaTrader 4 Tutorial Guide XAUUSD Platform Software Platform Software Tutorial Course