Gold Divergence XAUUSD SETUPS SUMMARY

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

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

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

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

Illustrations of the divergence 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 Analyze 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 signal MACD divergence is a setup to enter a trade. But as with any signal there are certain precautions which have to be observed to make this 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 system.

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 to the 4 Hour chart time frame on MT4 software.

If seen on a 60 minute chart, 4 hour chart, or daily chart time frame, then start looking for other factors to indicate when the price might react to the divergence.

This brings us to a key point when using this signal to enter a trade: on a higher time frame MACD divergence can be a fairly reliable indicator of a change 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 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 will not be aligning yourself with the best odds, so to increase odds of making a successful trade you as a trader should also consider other factors, specifically other indicators.

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

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

Another way to greatly increase the odds of a winning trade is to observe the higher time frames before opening an order based on the lower timeframes.

If you observe the hourly, 4 hour or daily XAUUSD chart has met a major resistance, support or Fib level then the probability of a successful trade based on divergence on a lower timeframe at this point increases.

2. Reward to Risk Ratio: Gold Money Management Principles

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

Finally, when used correctly and combined with other technical indicators to confirm this trading signal, divergence set-up can offer huge profit potential.