indicator which isn't useful in this situation (see: Probabilities in Trading). If looking to enter a trade based on divergence, wait for the price to break the current trend, confirming the divergence, before acting. For starters, you should determine whether or not you are using the best macd indicator for the job. Actually, the divergence between macd line and the currency pair rate is the basic signal in this strategy. Notice that I marked divergence when price was either down trending or up trending. (See also: Trading Divergence and Understanding Momentum. When traders first realize how powerful trading macd divergence can be, they often make the mistake of trying to trade the macd on its own. It's not recommended to use this strategy on the real account without testing it on demo first. If the price breaks out of a prior trend, heed the warning even if divergence wasn't present at the time of the reversal. (For more, see: Market Reversals and How to Spot Them.) Even with these guidelines, divergence may provide beneficial insight on some trades, but not others.
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Of course, the colors can vary between platforms and indicators, or due to user settings. Another problem with watching for this type of divergence is that it often isn't present when an actual price reversal occurs. It's a tool that may aid trading but is not perfect. During a ranging market, the macd and signal line will cross the zero line frequently. If it doesn't, that's a divergence-a traditional warning signal of a reversal. Hopefully, this article shed some light on any mistakes you might be making with this popular trading technique. For the purpose of this article, we will be using price action signals in conjunction with the different forms of macd divergence. The gap caused an unusual jump in the indicator, so as the price returns to more "normal" behavior, divergence occurs. Next, we have an example of bearish divergence. Daily Chart Showing 'False Positive' Divergence. Divergence shows the price is losing momentum relative to prior price swings, but that doesn't necessarily indicate a price reversal. Signals the macd may provide while this is occurring are degraded, because moving averages what the indicator is based on do not function well in choppy or sideways markets.
Trading The macd Divergence - Investopedia
Why macd Divergence Is an Unreliable Signal Investopedia
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