Divergence Trading Setups

Divergence is one of the trade setups used by traders. It involves looking at a silver 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 price makes a new swing high or a new swing low but the MACD indicator doesn't, indicating a divergence between price & momentum.

To look for divergence we look for two chart points, two highs that form an M-shape on the chart or 2 lows that form a WShape on Silver chart. Then look for the same M-shape or WShape on the indicator you use to trade.

Example of a Divergence Trade Setup:

In the chart below we spot two chart points, point A & point B (swing highs). These two points form an M-shape on the price chart.

Then using MACD technical indicator we check the highs made by the MACD, these are highs which are directly below Chart points A & B.

We then draw one line on the chart and another line on the MACD indicator.

Drawing Divergence Silver 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 identify Silver 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 XAGUSD price Highs

W Shapes dealing with price lows

Example of M Shapes

Examples of W Shapes

Now that you have learned the divergence trading terms that are used to explain setup. Let us look at the two types of divergences & how to trade these chart setups.

There two types are:

1. Classic Silver Trading Divergence

2. Hidden XAGUSD Trading Divergence

These two set ups are described on the following tutorials below