Divergence Gold Setups
Divergence is one of the trade setups used by XAUUSD traders. It involves looking at a xauusd chart & one more indicator. For our examples we shall use the MACD indicator.
To spot this trading setup find two chart points at which gold price makes a new swing high or a new swing low but the MACD indicator doesn't, indicating a divergence between gold price & momentum.
To look for divergence we look for two chart points, two highs that form an M-shape on the XAUUSD Trading chart or two lows that form a WShape on XAUUSD Trading chart. Then look for the same M-shape or WShape on the XAUUSD indicator you use to trade.
Example of a XAUUSD Divergence Setup Trade Setup:
In the gold chart below we identify 2 chart points, point A and point B (swing highs). These two points form an M-shape on the gold 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 XAUUSD Trading chart & another line on MACD technical indicator.
Drawing Divergence XAUUSD Lines
The chart above shows an example of one of the four 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 spot 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 trading terms:
M-shapes dealing with Gold price Highs
W Shapes dealing with XAUUSD price lows
Example of M Shapes
Examples of W Shapes
Now that you have learned the divergence trading terms that are used to explain trading setup. Let us look at the two types of divergences & how to trade these chart setups.
There two types are:
- Classic Gold Trading Divergence
- Hidden XAUUSD Trading Divergence
These two setups are explained on the following guides below
