How to Trade XAGUSD Trading Classic Bullish Divergence & Bearish Divergence
In silver trading, classic divergence is used as a possible sign for a silver trend reversal and is used by silver traders when looking for an area where xagusd trading price could reverse and start going in the opposite direction. For this reason this xagusd trading setup is used as a low risk entry method and also as an accurate way of exit out of a xagusd trade.
This strategy is a low risk technique to sell near the top or buy near the bottom, this makes the risk on your trades are very small relative to the potential reward. However, this is one method with very many whipsaws and most traders do not recommend using it.
Divergence in Trading is also used to predict the optimum point at which to exit a trade. If you already have an open trade that is already profitable, a good way to identify a profit taking level would be the point where you identify this silver trading setup.
There are 2 types, based on the direction of the Silver trend:
- Classic Bullish divergence
- Classic Bearish divergence
Silver Classic Bullish Divergence
Classic bullish divergence set-up forms when xagusd price is forming lower lows ( LL ), but the oscillator is making higher lows (HL). The example explained and shown below shows a picture of this silver trading setup.
Silver Classic Bullish Divergence
This examples uses MACD indicator as a Silver divergence indicator.
From the above example the xagusd price made a lower low(LL) but the indicator made a higher low(HL), this shows there is a divergence between the xagusd trading price & indicator. This signal warns of a possible silver trend reversal.
Classic bullish diverging signal warns of a possible change in silver trend from down to up. This is because even though the xagusd price went lower the volume of sellers who pushed the xagusd trading price lower was less as illustrated by MACD technical indicator. This indicates underlying weakness of the downward Silver trend.
Classic bearish XAGUSD Trading Divergence Setup
Classic bearish divergence setup occurs when xagusd price is showing a higher high ( HH ), but the oscillator is lower high (LH). The image below shows an example of the setup.
Silver Trading Classic Bearish Divergence
This examples also uses MACD indicator
From the above example the xagusd price made a higher high(HH) but the indicator made a Lower High(LH), this shows there is a divergence between the xagusd trading price & indicator. This signal warns of a possible silver trend reversal.
Classic bearish diverging signal warns of a possible change in the silver trend from up to down. This is because even though the xagusd trading price went higher the volume of buyers who pushed the xagusd trading price higher was less as illustrated by the MACD indicator. This indicates underlying weakness of the upward Silver trend.
In the examples above, if as a trader you had used divergence to trade you would have gotten good signals to enter or exit the trades at an optimal point. However, divergence signals just like other indicators, is also prone to whipsaws. That is why it is always good to confirm the diverging signals with other technical indicators such as the RSI, Moving Averages and Stochastic Oscillator.
A good indicator to combine classic diverging setups is the stochastic oscillator & wait for the stochastic lines to move in the direction of the divergence signal so as to confirm the trading signal.
Another good technical indicator to combine with is the moving average technical indicator, in this indicator a trader should use the Moving Average Crossover System
Examples of Moving Average Crossover Technique Strategy
Once the divergence signal is given, a trader will then wait for the Moving average crossover system to give a signal in the same direction, if there is a classic bullish setup, a trader will wait for the moving average system to give an upward crossover signal, while for a bearish classic divergence signal the trader should wait for the Moving average cross-over system to give a downward bearish crossover trading signal.
By combining the classic divergence trading signals with other technical indicators this way, a trader will be able to avoid whip-saws when it comes to trading the classic diverging signals, because the trader will wait until the xagusd trading market has actually reversed and is already moving towards this direction, hence the trader will not fall into the trap of picking market tops and bottoms.
