Divergence Metals Trading Setups
Divergence is one of the trade set ups used by Metals traders. It involves looking at a metals chart & one more indicator. For our examples we shall use the MACD indicator.
To spot this trading setup find two chart points at which metals price makes a new swing high or a new swing low but the MACD indicator doesn't, indicating a divergence between metals price & momentum.
To look for divergence we look for two chart points, two highs that form an M-shape on the Metal chart or two lows that form a W-Shape on the Metals chart. Then look for the same M-shape or W-Shape on the Metals indicator you use to trade.
Example of a Metal Divergence Setup Trade Setup:
In the metals chart below we identify 2 chart points, point A & point B (swing highs). These two points form an M-shape on the metals price chart.
Then using MACD indicator we check the highs made by MACD, these are the highs which are directly below Chart points A and B.
We then draw one line on the Metal chart & another line on the MACD indicator.
Drawing Divergence Metals Trading Lines
The chart above shows an example of one of the 4 types of divergences, the one above is known as hidden bearish divergence, one of the best type to trade. Types of divergences are covered in the next lesson.
How to spot divergence
In order to spot Metals diverging trading signal we look for the following:
- HH=Higher High- 2 highs but the last one is higher
- LH= Lower High- 2 highs but the last one is lower
- HL=Higher Low- 2 lows but the last one is higher
- LL= Lower Low- 2 lows but the last one is lower
First let us look at the illustrations of these trading terms:
M-shapes dealing with Metals price Highs
W-Shapes dealing with Metals price lows
Example of M Shapes
Examples of W Shapes
Now that you've learned the divergence trading terms that are used to explain setup. Let us look at the two types of divergences & how to trade these chart setups.
There two types are:
- Classic Metal Trading Divergence
- Hidden Metals Trading Divergence
These two set ups are explained on the following guides below
