Commodity Trading Divergence Commodities Trading SETUPS SUMMARY

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

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

Commodity Trading Hidden Bearish Divergence - LH commodity price, HH indicator - Indicates underlying strength of a commodity trend - Mainly found during corrective rallies in a downwards trend.

Commodities Trading Hidden Bullish Divergence - HL commodity price, LL indicator - Indicates underlying strength of a commodity trend - Occurs mainly during corrective declines in an upward commodities trend.

Divergence Forum - Illustrations of the divergence terms:

M-shapes dealing with Commodity price highs

M-shapes - Divergence Forum

W-shapes dealing with Commodities price lows

W-shapes - Divergence Forum

These are divergence shapes to look for when using these commodity trading setups.

One of the best commodity indicator for this commodities trading setup is the MACD Technical Indicator - as a commodity signal MACD divergence is a setup to enter a commodity trade. But as with any signal there are certain precautions that have to be observed to make this commodity trading signal a setup. Getting straight in to a trade as soon as you see this commodities trading setup is not the best strategy. This setup should be used in combination with another commodities trading 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 commodities trading setup on a smaller timeframe isn't so significant. When divergence is seen on a 15 minute chart it may or might not be very important as compared to the 4 H chart timeframe on MT4 commodities trading software.

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

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

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

If you simply look for this divergence trading 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 commodities indicators.

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

1. Support level, Resistance levels & Commodities Trading Fibo levels on higher Commodities Chart Time Frames

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 Commodity Trading chart has met a major resistance, support or Fib level then the probability of a successful trade based on divergence on a lower timeframe at this point increases.

2. Reward to Risk Ratio: Commodities 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 commodity trades which have more profit potential than what you're risking. If you understand how to enter a trade 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 commodities trading technical indicators to confirm this commodity trading signal, divergence setup can provide for a huge profit potential.