Divergence Setups Trading XAUUSD Using Divergence Setup

Divergence setup is one of the Gold trade setups used by XAU USD traders to analyze & interpret prices of Gold and try to forecast and predict the next likely direction of these gold prices. It involves looking at the Gold price chart and one more indicator. For our example we shall use MACD indicator.

To spot this divergence setup find 2 chart points at which price forms a new swing high or a new swing low but MACD indicator does not, indicating there's a divergence setup between the price and the momentum.

To search for divergence trading set-ups we look for 2 points, 2 highs that form an M-Shape on the Gold price chart or 2 lows that form a W Shape on the Gold price chart. Then look for the same M shape or W-Shape on the technical indicator which you use to trade.

Explanation of a Gold Price Divergence Setup:

In the Gold chart below we identify two chart points, point A & point B (swing highs). These two points form an M-Shape on the price chart.

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

We then plot one line on the Gold chart & another line on the MACD indicator just as is shown below.

Gold Divergence Trade Setups Trading - How too Trade XAUUSD Using Divergence Trading XAUUSD Setup

Gold - Divergence Trade Setup - Drawing Divergence Lines

The XAUSUD price chart above shows an illustration of one of the 4 types of divergence trading set-ups, the one above is known as hidden bearish divergence, one of the best types to trade. Different types of divergence trading set-ups are explained in the next tutorial.

How to spot divergence Trade Setup

In order to spot Gold divergence signal we check for the following:

HH = Higher High - two highs but last is higher, LH = Lower High - 2 highs but last is lower, HL = Higher Low - two lows but last is higher, LL = Lower Low - 2 lows but last is lower

First let us look at the exemplifications of these terms:

M shapes dealing with price Highs

Divergence Gold Setups Analysis - Trading XAUUSD Using Divergence Trade Setups

W Shapes dealing with price lows

Divergence Gold Setups Explained - How to Trade XAUUSD Using Divergence Trade Setups

These concepts above are explained below using XAU USD price charts & MACD indicator.

Explanation of M Shapes on Gold Price Charts

XAUUSD Divergence Trade Setups - Trading Gold Charts Using Divergence XAU/USD Setup

Explanation of W Shapes on XAUUSD Gold Price Charts

Divergence Gold Setups Described - How to Trade Gold Using Divergence Trade Setups

Now that you have learned the divergence trading terms that are used to explain the divergence setup patterns. Let us look at the two types of divergences & how to trade these set-ups on XAUUSD price charts.

There two types are of divergence set-ups:

Classic Divergence Setup
Hidden Divergence

These two divergence trading set-ups are presented on the next tutorials.

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