CFDs Trading Divergence CFD Trading SETUPS SUMMARY

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

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

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

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

Illustrations of the divergence terms:

M-shapes dealing with CFDs price highs

M-shapes

W-shapes dealing with CFD price lows

W-shapes

These are shapes to look for when using these cfd setups.

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

Be aware this cfd setup on a smaller time frame is not so significant. When divergence is seen on a 15 minute chart it may or may not be very important as compared to the 4 hour chart timeframe on MetaTrader 4 platform.

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

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

Many investors get caught out by entering the cfd market too soon when they see MACD divergence. In many cases, cfd 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 cfd price shoots through his stop-loss taking him out.

If you simply look for this cfd setup without any other considerations you will 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 CFDs setup?

1. Support level, Resistance levels & CFD Trading Fibonacci levels on higher CFD Chart Time Frames

Another way to greatly increase the odds of a winning trade is to observe the higher chart timeframes before opening an order based on the lower timeframes.

If you observe that the hourly, 4 hour or daily CFD chart has met a major resistance, support or Fibonacci level then the probability of a successful trade based on divergence set-up on a lower timeframe at this point increases.

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

And finally, when looking for divergence, it is very important that you enter the trade correctly, so that you've a good risk/reward ratio and only open cfd transactions 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 that offer a favorable ratio.

Finally, when used correctly & combined with other technical indicators to confirm this cfd trading signal, divergence set-up can offer huge profit potential.