Divergence Energies Trading Setups
Divergence is one of the trade set ups used by Energies traders. It involves looking at a energies chart and one more indicator. For our example we shall use the MACD indicator.
To spot this trading setup find two chart points at which energies price makes a new swing high or a new swing low but the MACD indicator does not, indicating a divergence between energies price & momentum.
To look for divergence we look for two chart points, two highs that form an M-shape on the Energies Trading chart or two lows that form a W-Shape on the Energies Trading chart. Then look for the same M-shape or W-Shape on the Energies indicator you use to trade.
Example of a Energy Divergence Setup Trade Setup:
In the energies chart below we spot two chart points, point A & point B (swing highs). These two points form an M-shape on the energies trading price chart.
Then using MACD indicator we check highs made by MACD, these are highs which are directly below Chart points A & B.
We then draw one line on the Energies Trading chart & another line on the MACD indicator.
Drawing Divergence Energies Trading Lines
The chart above shows an example of one of the 4 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 Energies Trading diverging signal we look for the following:
- HH=Higher High- two highs but the last one is higher
- LH= Lower High- two highs but the last one is lower
- HL=Higher Low- two lows but the last one is higher
- LL= Lower Low- two lows but the last one is lower
First let us look at the illustrations of these trading terms:
M-shapes dealing with Energies price Highs
W-Shapes dealing with Energy 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 and how to trade these chart setups.
There two types are:
- Classic Energies Trading Divergence
- Hidden Energy Trading Divergence
These two set ups are explained on following guides below
