Hidden Bullish and XAUUSD Hidden Bearish Divergence Gold
Hidden divergence trading strategy is used as a possible sign for a xauusd market xauusd trend continuation after the gold trading price has retraced. It is a signal that the original xauusd trend is resuming. This is the best divergence setup to trade because it is in same direction as that of the continuing market trend.
Divergence trading strategy
This divergence trading setup happens when price is forming a higher low ( HL ), but the oscillator (indicator) is showing a lower low (LL). To remember them easily think of them as W-shapes on Chart patterns. It occurs when there is a retracement in an upwards gold trend.
The example illustrated & shown below shows an image of this divergence trading set up, from the image the gold trading price made higher low (HL) but the indicator made a lower low (LL), this shows that there was a divergence signal between the gold price and indicator. This signal shows that soon the xauusd market up xauusd trend is going to resume. In other words it shows this was just a retracement in an upwards xauusd trend.
Divergence trading strategy
This confirms that a retracement move is complete & indicates underlying strength of an upwards gold trend.
XAUUSD Hidden Bearish Divergence
This setup happens when price is forming a lower high ( LH ), but the oscillator is showing a higher high (HH). To remember them easily think of them as M-shapes on Chart patterns. It occurs when there is a retracement in a downwards trend.
The example illustrated & shown below shows an image of this xauusd setup, from the screenshot the gold trading price made a lower high (LH) but the indicator made a higher high (HH), this shows that there was a divergence between the gold price & the indicator. This shows that soon the xauusd market down xauusd trend is going to resume. In other words it shows this was just a retracement in a downward trend.
Divergence trading strategy
This confirms that a retracement move is complete and indicates underlying strength of a downward gold trend.
Other popular technical indicators used are Commodities Channel Index indicator (CCI), Stochastic Oscillator, RSI and MACD. MACD & RSI are the best indicators.
NB: Hidden divergence is the best type to trade because it gives a signal that is in the same direction with the current market trend, thus it has a high reward to risk ratio. It provides for the best possible entry.
However, a trader should combine this xauusd setup with another indicator like the stochastic oscillator or moving average and buy when the price is oversold, and sell when the price is overbought.
Combining Hidden Gold Divergence with Moving Average XAUUSD Trading Crossover Strategy
A good indicator to combine these xauusd setups is the moving average indicator using the moving average crossover method. This will create a good trading strategy.
Moving Average Crossover Method - Divergence trading strategy
In this divergence xauusd strategy, once the trading signal is given, a trader will then wait for the moving average cross over method to give a buy/sell signal in same direction, if there is a bullish divergence set up between the gold trading price and indicator, wait for the moving average cross over system to give an upwards crossover signal, while for a bearish divergence set-up wait for the moving average cross over system to give a downward bearish cross-over signal.
By combining this Divergence trading strategy with other indicators this way a trader will avoid whipsaws when it comes to trading with this gold trade signal.
Combining with Gold Fibonacci Retracement Levels
For this example we shall use an upward market trend. The xauusd instrument - We shall use the MACD indicator.
Because the hidden divergence is just a retracement in an upward xauusd trend we can combine this xauusd signal with most popular retracement tool that is the Fibonacci retracement levels. The example illustrated & shown below shows that when this xauusd setup appeared on the chart, the gold trading price had just hit the 38.2% level. When gold price tested this level, this would have been a good level to set a buy order.
Divergence trading strategy setup
Combining with Gold Fibonacci Expansion Levels
In the xauusd example above once the buy xauusd trade was placed, a trader would then need to calculate where to place take profit for this trade. To do this a trader would need to use the Gold Fib Expansion Levels.
The Fibo expansion was drawn as illustrated and shown on the trading chart as illustrated & shown below.
Divergence trading strategy setup
For this example there were 3 take profit levels:
Fibo Expansion Level 61.8% - 131 pips profit
Fibonacci Expansion Level 100.00% - 212 pips profit
Fibo Expansion Level 161.8% - 337 pips profit
From this divergence trading strategy combined with Fibonacci would have provided a good strategy with a good amount of profit set using these take profit areas.
