Commodities Trading Divergence Commodity Trading SETUPS SUMMARY

Classic Bearish - 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.

Classic Bullish - 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.

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

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

Illustrations of the divergence terms:

M-shapes dealing with Commodities price highs

M-shapes

W-shapes dealing with Commodity price lows

W-shapes

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

One of the best indicator for this commodities trading setup is the MACD Indicator - as a commodity 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 commodity trading signal a setup. Getting straight in to a trade as soon as you see this commodities setup isn't 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 commodities setup on a smaller time-frame isn't so significant. When divergence is seen on a 15 minute chart it may or may not be very important as compared to the 4 H chart timeframe on MT4 commodities trading software.

If 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 commodity 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 investors 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 stop-loss taking him out.

If you simply look for this commodities 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 Commodities trading setup?

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

Another way to greatly increase the odds of a winning trade is to observe higher chart time-frames before opening an order based on 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 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 is very important that you enter the trade correctly, so that you have a good risk/reward ratio & only open commodity trade transactions which have more profit potential than what you're 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 indicators to confirm this commodity trading signal, divergence setup can provide for a huge profit potential.