Divergence Gold Setups
The Divergence Setup ranks as a key trading method for traders. It pairs a price chart with an extra indicator. In our cases, we pick the MACD indicator.
To spot this trading set-up find 2 chart points at which price makes a new swing high or a new swing low but MACD doesn't, indicating a divergence setup between price and momentum.
If you're hunting for a divergence setup, look for two points on the chart - two highs that make an M-shape, or two lows that form a W on the XAUUSD chart. Then check your indicator for the same pattern. That's your signal.
Example illustration of a Divergence Setup:
In the chart below, we spot two points, A and B, both swing highs. They create an M shape on the price chart.
Subsequently, employing the MACD, we examine the peaks registered by the indicator: these peaks consistently fall vertically underneath Chart points A and B.
We then draw one line on the Trading chart & another line on MACD indicator.
Drawing Divergence Lines
The chart above displays example of one of the 4 types of divergences, the one above is referred to as hidden bearish divergence, one of best type to trade. Types of divergence setups are covered in the next lesson.
How to identify divergence setup
In order to identify XAUUSD Trading divergence setup signal we check for the following:
- HH = Higher High - 2 highs but last is higher
- LH = Lower High - two highs but last is lower
- HL = Higher Low : 2 lows but last is higher
- LL = Lower Low - 2 lows but last is lower
First let us look at the illustrations of these trading terms:
M-shapes dealing with price Highs
W Shapes dealing with price lows
Example illustration of M-Shapes
Examples of W-Shapes
Now that you as a trader have learned the divergence terms that are used to illustrate set-up. Let us look at the2 types of divergences and how to trade these chart setups and patterns.
There two types are:
- Classic Divergence
- Hidden Trade Divergence
These two setups are explained on the following guides below
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