Energy Trading Divergence Energies Trading SETUPS SUMMARY

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

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

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

Hidden Bullish - HL energies price, LL indicator - Indicates underlying strength of a energies trend - Occurs mainly during corrective declines in an upward energies trend.

Illustrations of the divergence terms:

M-shapes dealing with Energy price highs

M-shapes

W-shapes dealing with Energies price lows

W-shapes

These are shapes to look for when using these energies setups.

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

Be aware this energies setup on a smaller time frame is not so significant. When divergence is seen on a 15 minute chart it may or may not be very important as compared to the 4 hour chart timeframe on MT4 energies trading platform.

If seen on a 60 minute chart, 4 hour chart, or daily chart timeframe, then start looking for other factors to indicate when the energies price may react to the divergence.

This brings us to a key point when using this energies signal to enter a trade: on a higher time frame MACD divergence can be a fairly reliable indicator of a change in energies price direction. However, the big question is: WHEN? That is why getting straight in to a trade as soon as you see this energies setup is not always the best strategy.

Many investors get caught out by entering the energies market too soon when they see MACD divergence. In many cases, energies 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 energies price shoots through his stop loss taking him out.

If you simply look for this energies 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 Energies setup?

1. Support level, Resistance levels and Energy Trading Fib levels on higher Energies 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 time frames.

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

2. Reward to Risk Ratio: Energies Trading Money Management Rules

And finally, when looking for divergence, it is very important that you enter the trade correctly, so that you have a good risk/reward ratio and only open energies transactions that 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 and combined with other technical indicators to confirm this energies trading signal, divergence set-up can offer huge profit potential.