Divergence Gold Setups

Divergence is one of the trade set ups used by traders. It involves looking at a chart & one more indicator. For our examples we shall use the MACD indicator.

To spot this trading setup find two chart points at which price makes a new swing high or a new swing low but MACD indicator doesn't, indicating a divergence between price & momentum.

To look for divergence we look for two chart points, 2 highs that form an M-shape on the Trading chart or two lows that form a WShape on XAUUSD Trading chart. Then look for the same M-shape or WShape on the indicator you use to trade.

Example of a Divergence Setup Trade Setup:

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

Then using MACD indicator we check highs made by the MACD, these are highs which are directly below Chart points A & 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 known as hidden bearish divergence, one of the best type to trade. Types of divergences are covered in the next lesson.

How to spot divergence

In order to identify XAUUSD Trading diverging signal we look for the following:

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

First let us look at the illustrations of these terms:

M-shapes dealing with price Highs

W Shapes dealing with price lows

Example of M Shapes

Examples of W Shapes

Now that you have learned the divergence terms that are used to explain set-up. Let us look at the two types of divergences & how to trade these chart setups.

There two types are:

1. Classic Divergence

2. Hidden Trade Divergence

These two setups are explained on the following guides below