Commodity Trading Divergence Strategy

Divergence Commodity Trading Definition - Divergence commodity trading is one of the commodity trading setups used by Commodity traders. Divergence commodity trading involves looking at a commodity chart & one more commodity technical indicator. For our divergence trading example we shall use the MACD commodity indicator.

To spot this  commodities trading divergence setup find two chart points at which commodity price makes a new swing high or a new swing low but the MACD indicator does not, indicating a commodities trading divergence between commodity price & momentum.

To look for divergence commodity signal we look for 2 chart points, 2 highs which form an M shape on the commodity chart or 2 lows that form a WShape on the commodities trading chart. Then look for the same M-shape or WShape on the Commodity Trading indicator that you use to trade - for examples RSI indicator, MACD indicator or Stochastic Oscillator indicator.

Example of a Commodity Trading Divergence Setup Trade Setup:

In the commodity chart below we spot 2 chart points, point A and point B (swing highs). These 2 chart points form an M-shape on the commodity price chart.

Then using MACD technical indicator we check the highs made by the MACD technical indicator, these are highs that are directly below Chart points A & B.

We then draw one line on the commodity chart & another line on the MACD indicator.

Drawing Divergence Commodity Lines - Commodity Divergence Strategy - Commodity Trading Divergence Entry & Exit

The commodity chart above shows an example of one of the 4 types of commodities trading divergence setup, the one above is known as hidden bearish commodity divergence. Types of commodities trading divergence setups are covered in the next learn commodity trading lesson.

How to spot divergence commodity trading setup

In order to spot Commodities Trading divergence trading signal we look for the following:

• HH - Higher High - two highs but the last one is higher
• LH - Lower High - two highs but the last one is lower
• HL - Higher Low - 2 lows but the last one is higher
• LL - Lower Low - two lows but the last one is lower

First let us look at the illustrations of these divergence commodity trading terms:

M shapes on Commodities charts dealing with Commodity price Highs

W Shapes on Commodities charts dealing with Commodity price lows

Example of M Shapes on Commodities Charts

Examples of W Shapes on Commodity Trading Charts

Now that you've learned the divergence commodity trading terms that are used to explain divergence setup. Let us look at the two types of commodity trading divergences and how to trade these commodity divergence chart setups.

The two commodity divergence types which are:

1. Classic Commodity Trading Divergence
2. Hidden Commodity Trading Divergence

These two commodities trading divergence set ups - classic divergence trading & hidden divergence trading are described on the following learn commodity guides in the commodity lessons tutorials on this website located at the navigation menu under the topics learn commodity trading lessons.