Divergence CFDs Setups
Divergence is one of the trade set ups used by CFD traders. It involves looking at a cfd chart & one more indicator. For our examples we shall use the MACD indicator.
To spot this trading setup find two chart points at which cfd price makes a new swing high or a new swing low but the MACD indicator doesn't, indicating a divergence between cfd price & momentum.
To look for divergence we look for two chart points, two highs that form an M-shape on the CFD Trading chart or two lows that form a W-Shape on the CFD Trading chart. Then look for same M-shape or W-Shape on the CFD indicator you use to trade.
Example of a CFD Trading Divergence Trade Setup:
In the cfds chart below we identify two chart points, point A & point B (swing highs). These 2 points form an M-shape on the cfd price chart.
Then using MACD indicator we check the highs made by MACD, these are the highs that are directly below Chart points A & B.
We then draw one line on the CFD Trading chart & another line on the MACD indicator.
Drawing Divergence CFD Lines
The chart above shows 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 CFD Trading diverging signal we look for the following:
- HH=Higher High- two 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 CFDs price Highs
W-Shapes dealing with CFD price lows
Example of M Shapes
Examples of W Shapes
Now that you have learned the divergence trading terms that are used to explain set-up. Let us look at the two types of divergences & how to trade these chart setups.
There two types are:
- Classic CFDs Trading Divergence
- Hidden CFD Trading Divergence
These two set ups are described on the following tutorials below
