CFDs Trading Divergence CFD Trade SETUPS SUMMARY

Classic Bearish - HH price, LH indicator - Indicates the underlying weakness of a trend - Warning of a possible change in the cfd trend from up to down.

Classic Bullish - LL price, HL indicator - Indicates the underlying weakness of a trend - Warning of a possible change in the cfd trend from down to up.

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

M-shapes

W-shapes dealing with price lows

W-shapes

These are the shapes to look for when using these cfd setups.

One of the best indicator for this cfd setup is the MACD Indicator - as a signal MACD divergence is a setup to enter a trade. But as with any trading signal there are certain precautions which have to be observed to make this trading signal a setup. Getting straight in to a trade as soon as you see this cfd setup is not the best strategy. This setup should be used in combination with another indicator to confirm the direction of the trend. A good system to combine with is the moving average cross-over system.

Be aware this cfd setup on a smaller time-frame is not so significant. When divergence is seen on a 15 min chart it might or might not be very important as compared to the 4 H chart time-frame on MetaTrader 4 platform.

If seen on a 60 minute chart, 4 hour chart, or daily chart time-frame, then begin 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 cfd setup is not always the best strategy.

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

If you simply look for this cfd setup without any other considerations you will not be aligning yourself with the best odds, so to increase the odds of making a successful trade you should also look at other factors, specifically other indicators.

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

1. Support level, Resistance levels & CFD Trading Fibo levels on higher Chart Time-Frames

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

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

2. Reward to Risk Ratio: CFD Trade Money Management Guidelines

And finally, when looking for divergence, it is very important that you enter the trade correctly, so that you've a good risk/reward ratio and only open cfd transactions thatwhich have more profit potential than what you are risking. If you understand how to enter a transaction properly, you can measure your risk/reward before you open a transaction. That way, you can only choose to open orders which offer a favorable ratio.

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