The MACD is an oscillator. Many people use it for a variety of tasks. I used it to
show me divergence, nothing else.
What is divergence?
A divergence occurs when the MACD indicates a move in one direction while price
is moving in the other; when price for example makes higher highs yet the
oscillator makes lower lows.
Let me give you a real life example of what divergence is. Let’s take for an example
the real estate market. Let’s suppose that prices have been dropping for about 2
years. At some point prices will still go down yet the number of potential buyers
will begin to rise.
This is a divergence; prices go down in the first place because of lack of buyers. If
you see that at some point there are more interested buyers in the market than
this might serve you as an early warning of a change of trend.
Obviously there are many more factors to the above example, but I just wanted
you to get the point.
Back to MACD. I found this indicator to give excellent divergence signals. In fact, I
believe that a divergence has to happen when looked at on the ‘correct’ time
frame.
I will not go into how exactly the MACD works; briefly, it plots the difference the
between two different Exponential Moving Averages.
As you can see, while on the price chart the A high is lower than the C high, on the
MACD the C point is lower than the A point.
Here is the weekly time frame with another divergence. In fact, there are at least
3, can you spot them?
show me divergence, nothing else.
What is divergence?
A divergence occurs when the MACD indicates a move in one direction while price
is moving in the other; when price for example makes higher highs yet the
oscillator makes lower lows.
Let me give you a real life example of what divergence is. Let’s take for an example
the real estate market. Let’s suppose that prices have been dropping for about 2
years. At some point prices will still go down yet the number of potential buyers
will begin to rise.
This is a divergence; prices go down in the first place because of lack of buyers. If
you see that at some point there are more interested buyers in the market than
this might serve you as an early warning of a change of trend.
Obviously there are many more factors to the above example, but I just wanted
you to get the point.
Back to MACD. I found this indicator to give excellent divergence signals. In fact, I
believe that a divergence has to happen when looked at on the ‘correct’ time
frame.
I will not go into how exactly the MACD works; briefly, it plots the difference the
between two different Exponential Moving Averages.
MACD the C point is lower than the A point.
Here is the weekly time frame with another divergence. In fact, there are at least
3, can you spot them?
