Index Trade Divergence Trading SETUPS SUMMARY

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

Index Trade Classic Bullish Divergence - LL price, HL indicator - Indicates the underlying weakness of a market trend - Warning of a possible change in the trend from downward to upward.

Stock Hidden Bearish Divergence Pattern - LH price, HH indicator - Indicates the underlying power of a market trend - Mainly found during corrective rallies in a downwards trend.

Stock Index Hidden Bullish Divergence Setup - HL price, LL indicator - Indicates the under-lying strength of a market trend - Occurs mainly during the corrective declines in an upward trend.

Divergence Community - Illustrations of the divergence trading setup terms:

M-shapes dealing with Index price highs

Indices DIVERGENCE TRADING SETUPS SUMMARY - Divergence Setups Summary

M shapes - Divergence Community

W-shapes dealing with Indices price lows

W-Shapes stock price lows - Index Trade Divergence Forum - Index Trade Divergence in Setups

W shapes - Divergence Community

These are the divergence setups to look for when using these set-ups.

One of the best stock indicator for this stock trading setup is the MACD Technical Indicator - as a stock index trading signal MACD divergence is a setup to enter into a trade. But as with any signal there are certain precautions which have to be observed to make this stock trading signal a setup. Getting straight in to a trade as soon as you see this stock trading setup is not the best strategy. This setup should be used in combination with another stock indicator to confirm the market direction of the trend. A good system to combine with is the Moving Average crossover system.

Be aware this setup on a smaller time frame is not so significant. When divergence is seen on a 15 min chart it may or might not be very important as compared & analyzed to the 4 hour chart time frame on MT4 software.

If divergence set-up seen on a 60 minute chart, 4 H chart, or day chart time frame, then start searching for other factors and aspects to reflect when the stock price might react to the divergence.

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

Many traders get caught out by entering the stock trading market too soon when they see the MACD divergence setup. In many cases, price has still got some power to continue in current direction. The investor and trader whose opened a trade too soon only can stare at and watch the screen in dismay as the stock price shoots through his stoploss taking him out.

If you simply look for this divergence setup without any other considerations you will not be aligning yourself with the best chances, so to increase the chances of making a successful trade position you should also look at other factors and aspects, specifically other stock indicators.

What other factors & aspects should you as a trader consider when using this trading setup?

1. Support level, Resistance levels and Stock Index Trade Fib levels on higher Chart Time Frames

Another way to significantly increase the chances of a winning trade is to look at the higher chart time frames before opening a trade order based on the lower timeframes.

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

2. Reward:Risk Ratio: Stock Indices Trade Money Management Principles

And finally, when searching for divergence, it is very crucial that you as a trader enter the trade transaction correctly, so that as you as a trader have a good risk/reward ratio and only open trades which have more profit potential than what you're risking. If you understand how to enter a trade properly, you as a stock indices trader can measure your risk/reward before you open a trade. That way, you as a stock indices trader can only select to open orders that offer a favorable ratio.

Finally, when used correctly and combined with other indicators to confirm this signal, divergence setup can provide for a huge profit potential.

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