Indices Trading Divergence Trading SETUPS SUMMARY

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

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

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

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

Divergence Community - Illustrations of the divergence terms:

M-shapes dealing with Stock Indices price highs

Indices DIVERGENCE TRADING SETUPS SUMMARY - Divergence Trading Setups Summary

M shapes - Divergence Community

W-shapes dealing with Indices price lows

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

W shapes - Divergence Community

These are the divergence shapes 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 signal MACD divergence is a setup to enter 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 position 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 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 to the 4 hour chart time-frame on MT4 software.

If divergence set-up seen on a 60 minute chart, 4 hour chart, or daily chart time-frame, then start looking for other factors to indicate 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 transaction: on a higher timeframe 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 momentum to continue in current direction. The investor who has jumped in too soon can only stare at screen in dismay as 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 odds, so to increase the chances of making a successful trade you should also look at other factors, specifically other stock indicators.

What other factors should you consider when using this trading setup?

1. Support level, Resistance levels and Indices Trading Fib levels on higher Chart Timeframes

Another way to significantly increase the chances of a winning trade is to observe the higher chart time-frames before opening an 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 based on divergence on a lower time frame at this point increases.

2. Reward:Risk Ratio: Indices Trading Money Management Principles

And finally, when looking for divergence, it is very crucial that you enter the trade correctly, so that you 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 can measure your risk/reward before you open a trade transaction. That way, you can only select to open orders which 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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