Divergence Commodities Trading Setups
Divergence is one of the trade setups used by Commodities traders. It involves looking at a commodity 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 commodities price makes a new swing high or a new swing low but the MACD indicator does not, indicating a divergence between commodities price & momentum.
To look for divergence we look for two chart points, two highs that form an M-shape on the Commodity Trading chart or two lows that form a W Shape on Commodity Trading chart. Then look for the same M-shape or W-Shape on the Commodities indicator you use to trade.
Example of a Commodities Trading Divergence Trade Setup:
In the commodities chart below we spot two chart points, point A & point B (swing highs). These two points form an M-shape on the commodities price chart.
Then using MACD indicator we check the highs made by the MACD, these are the highs which are directly below Chart points A and B.
We then draw one line on the Commodity Trading chart and another line on MACD trading technical indicator.
Drawing Divergence Commodity Trading Lines
The chart above shows 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 tutorial.
How to spot divergence
In order to spot Commodity 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 Commodity price Highs
W Shapes dealing with Commodities price lows
Example of M Shapes
Examples of W Shapes
Now that you've learned the divergence trading terms that are used to explain set-up. Let us look at the 2 types of divergences & how to trade these chart setups.
There two types are:
- Classic Commodity Trading Divergence
- Hidden Commodities Trading Divergence
These 2 set ups are explained on the following tutorials below
