Trade Stock Indices

Learn Stock Indices Trading

Divergence Indices Trading Setups

Divergence is one of the trade setups used by Indices traders. It involves looking at a stock indices 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 stock indexes price makes a new swing high or a new swing low but the MACD indicator does not, indicating a divergence between stock indexes price and momentum.


To look for divergence we look for two chart points, two highs that form an M-shape on the Stock Indexes chart or two lows that form a W-Shape on the Indices chart. Then look for the same M-shape or W-Shape on the Indices indicator you use to trade.


Example of a Stock Indexes Divergence Trade Setup:

In the stock indices chart below we identify two chart points, point A and point B (swing highs). These two points form an M-shape on the stock indexes price chart.


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


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

Stock Indexes Divergence Trade Example on MACD Indices Indicator

Drawing Divergence Indices Trading Lines

The chart above shows an 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 lesson.


How to spot divergence

In order to spot Indices 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 stock indexes price Highs

Higher High Higher Low Divergence Indices Trading


W-Shapes dealing with stock indexes price lows

Higher Low Lower Low Divergence Indices Trading


Broker


Example of M Shapes

M shapes on a Indices Trading Chart


Examples of W Shapes

W shapes on a Indices Trading Chart


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:


  1. Classic Divergence


  2. Hidden Divergence


These two setups are explained on the following tutorials below

 

Forex Seminar Gala


Forex Seminar




Broker