Divergence Setups Trading XAUUSD Using Divergence Setup

Divergence setup is a way that XAU USD traders look at Gold prices to understand them and try to guess where the gold prices will go next. It means looking at the Gold price chart and one other sign. For this example, we will use the MACD sign.

To find this setup, look for 2 spots on the chart where the price makes a new high or a new low, but the MACD indicator doesn't, which means that the price and the momentum are not in agreement.

For divergence trade setups, spot two points. Look for two highs that make an M on the gold price chart. Or find two lows that form a W on the gold price chart. Then check for the same M or W shape on the indicator you use for trades.

Explanation of a Gold Price Divergence Setup:

On the gold chart below, points A and B mark swing highs that shape an M pattern.

Next, look at the MACD indicator. Check its peaks that sit just under chart points A and B.

One line is plotted on the gold price chart and another on the MACD indicator, as depicted below.

Gold Divergence Trades - Trade XAUUSD Divergence Setups

Gold - Divergence Trade Setup - Drawing Divergence Lines

The XAUSUD price chart shown above gives an example of one of the 4 kinds of divergence trading setups: the one shown is called hidden bearish divergence, which is a great kind to trade. Different kinds of divergence trading setups are described later.

How to identify 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 - two lows, with the last being lower.

First let us look at the exemplifications of these terms: