Gold Divergence XAU/USD SETUPS SUMMARY

Classic Bearish - HH price, LH indicator - Indicates the under-lying weakness of a price trend - Warning of a potential reversal in the trend from upward to downward.

Classic Bullish - LL price, HL indicator - Indicates the under-lying weakness of a price trend - Warning of a potential reversal in the trend from downward to upward.

Hidden Bearish - LH price, HH indicator - Indicates the under-lying strength of a price trend - Mainly found during the corrective rallies in a downwards trend.

Hidden Bullish - HL price, LL indicator - Indicates the under-lying strength of a trend - Occurs mainly during corrective declines in an up-ward trend.

Illustrations of the divergence trading setup terms:

M-shapes dealing with price highs

Divergence Setups of M Shapes of Price Highs and W Shapes XAUUSD Price Lows Examples Explained

M shapes

W-shapes dealing with price lows

How Do I Interpret Divergence Gold & Trade Divergence Setups in Gold Trading?

W shapes

These are shapes to look for when using these setups.

One of the best indicator for this gold setup is the MACD Indicator - as a trade signal MACD divergence setup is a set-up to enter a trade position. But as with any trading signal there are certain guidelines which have to be looked at to make this trading signal a set-up. Getting straight into a trade position as soon as you see this xauusd setup isn't the best strategy. This setup should be used in combination with another indicator to confirm the direction of the market trend. A good system to combine with is the MA cross-over method.

Be aware this xauusd setup on a smaller time-frame isn't so significant. When divergence is seen on a 15 minute chart it may or may not be very important as compared and analyzed to the 4 Hour chart time frame on MetaTrader 4 platform.

If seen on a 60 minutes trading chart, 4 H chart, or daily chart time frame, then start searching for other factors and aspects to show when the price might react to the divergence.

This brings us to a key point when using this trading signal to enter a position: on a higher time-frame MACD divergence setup can be a fairly reliable technical indicator of a reversal in price direction. However, the big question is: WHEN? That is why getting straight in to a trade as soon as you see this xauusd setup isn't always the best trade strategy.

Many investors get caught out by entering the market too soon when they see MACD divergence. In many cases, price has still got some momentum to continue in current direction. The investor who has jumped in too soon can only stare at the screen in dismay as price moves through his stoploss taking him out.

If you simply look for this xauusd setup without any other considerations you'll not be aligning yourself with the best chances, so to increase odds of executing a successful trade you as a gold trader should also take into account other factors and aspects, specifically other technical indicators.

What other factors and aspects should you consider when using this Gold setup?

1. Support level, Resistance levels and Gold Fibonacci levels on higher Chart Time Frames

Another way to significantly increase the odds of a winning trade is to look at and observe the higher time-frames before opening a trade order based on the lower timeframes.

If you look at the hourly, 4 hour or daily XAUUSD chart has met a major resistance, support or Fibonacci level then the probability of a successful trade position based on the divergence on a lower time-frame at this point increases.

2. Reward to Risk Ratio: Gold Money Management Principles

And finally, when scanning for divergence, it is very crucial that you as a trader enter the trade correctly, so that you as a trader have a good risk/reward ratio & only open xauusd transactions which have more profit potential than what you're risking. If you understand how to enter a trade transaction properly, you as a trader can gauge your risk-reward before you open a trade. That way, you as a trader can only choose to open orders which offer a favorable ratio.

Finally, when used correctly and combined with other indicators to confirm this trading signal, divergence trade setup can offer huge profit potential.

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