Divergence trading can be done with both the MACD and stochastics. In an earlier lesson I showed how to trade stochastics divergence. In this lesson I will show you how to trade divergences with the MACD.

Regular divergence in an up trend (higher highs/higher lows) compares the higher highs in price with the highs in the indicator. In the stock chart below notice that the MACD has a lower high while the stock price has a higher high. This is a signal that the trend is getting weak.

Regular divergence in a downtrend (lower highs/lower lows) compares the lower lows in price with the lows of the indicator. In the chart below notice that the MACD has higher lows while the price has lower lows. This is a signal that the trend is getting weak.

Negative Divergence On $GOLD

Lots of gold bugs like Peter Schiff and Doug Casey talk about gold going to $5,000 and even $10,000. The chart suggests this isn't going to happen right now and that a pullback is coming. A negative divergence has formed on $GOLD between the price and the MACD.

This is a great example of how to filter out the hype and to see the market for what it really is. Seeing this negative divergence forming helps traders from chasing a market that is about ready to pullback.

For a daily email alert on the current trend of Gold and when it's time to sell and take profits, click here. Keep the ticker symbol as FOREX_XAUUSDO (Gold spot price) and just fill in your name and email address.

For a daily email alert on the current trend of Gold and when it's time to sell and take profits, click here. Keep the ticker symbol as FOREX_XAUUSDO (Gold spot price) and just fill in your name and email address.