Divergence CFDs Setups

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

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

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

Example of a CFDs Trading Divergence Trade Setup:

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

Then using MACD indicator we check the highs made by the MACD, these are highs that are directly below Chart points A & B.

We then draw one line on the CFD Trading chart and another line on the MACD indicator.

Drawing Divergence CFD Lines

The chart above highlights 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 identify CFD Trading diverging trading signal we look for the following:

• HH=Higher High- two 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 price Highs

W-Shapes dealing with price lows

Example of M Shapes

Examples of W Shapes

Now that you have learned the divergence trading 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 Trade Divergence

2. Hidden CFDs Trading Divergence

These two setups are described on the following guides below