Stocks Trading Divergence Stock Trading SETUPS SUMMARY

Classic Bearish - HH stock price, LH indicator - Indicates underlying weakness of a stock trend - Warning of a possible change in the stock trend from up to down.

Classic Bullish - LL stock price, HL indicator - Indicates underlying weakness of a stock trend - Warning of a possible change in the stock trend from down to up.

Hidden Bearish - LH stock price, HH indicator - Indicates underlying strength of a stock trend - Mainly found during corrective rallies in a downward stocks trend.

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

Illustrations of the divergence terms:

M-shapes dealing with Stocks price highs

M-shapes

W-shapes dealing with Stock price lows

W-shapes

These are the shapes to look for when using these stock trading setups.

One of the best indicator for this stocks trading setup is the MACD Indicator - as a stock signal MACD divergence is a setup to enter a trade. But as with any trading signal there are certain precautions that have to be observed to make this stock signal a set-up. Getting straight in to a trade as soon as you see this stocks setup is not the best strategy. This setup should be used in combination with another technical indicator to confirm the direction of the stocks trend. A good system to combine with is the moving average cross over system.

Be aware this stocks setup on a smaller timeframe is not so significant. When divergence is seen on a 15 minute chart it might or might not be very important as compared to the 4 Hour chart timeframe on MT4 stocks software.

If seen on a 60 minute chart, 4H chart, or daily chart timeframe, then start looking for other factors to indicate when the stocks price may react to the divergence.

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

Many investors get caught out by entering the stocks market too soon when they see MACD divergence. In many cases, stocks price has still got some momentum to continue in the current direction. The investor who has jumped in too soon can only stare at the screen in dismay as stocks price shoots through his stop loss taking him out.

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

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

1. Support level, Resistance levels and Stock Trading Fibonacci levels on higher Stock Chart Timeframes

Another way to significantly increase the odds of a winning trade is to observe the higher chart time-frames before opening an order based on the lower time-frames.

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

2. Reward to Risk Ratio: Stock Trading Money Management Rules

And finally, when looking for divergence, it's very important that you enter the trade correctly, so that you have a good risk/reward ratio & only open stock trades that have more profit potential than what you are risking. If you understand how to enter a transaction properly, you can measure your risk/reward before you open a transaction. That way, you can only choose to open orders which offer a favorable ratio.

Finally, when used correctly and combined with other indicators to confirm this stock signal, divergence setup can offer huge profit potential.