How to Use Effectively The MACD Divergence Strategy
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Powerful Forex Macd Divergence Trading Strategy
MACD(moving average convergence/divergence), is a trading indicator used in technical analysis of the currency and stocks. It is designed to reveal changes in the direction, duration, strength, and momentum of a trend in a stock’s price and currency pairs.
A little bit about the Macd
The Moving Average Convergence and Divergence: The Macd is a trend following momentum indicator which shows the relationship between two moving averages that we chose and configure them on the indicator. The Macd is calculated by subtracting the 26 period exponential moving average and the 12 period D.A.M. These are the default parameters when you put the Macd indicator on the charts, and the period is usually 9 which means the last 9 candles.
These are the parameters that I use, I don’t change it from the default
The MACD Divergence
The MACD Divergence is a situation where the price creates higher tops and the MACD creates a raw of lower tops, or the price creates a lower bottom and the MACD creates higher bottoms, MACD Divergence after a significant uptrend indicates that the buyers are losing power and MACD Divergence after downtrend indicates the sellers losing power.
The most reliable way to use the MACD divergence is to combine it with price action.
In this video, you’ll learn to Implement the MACD Divergence Indicator, one of the most powerful trading strategies to use.
Macd Divergence Examples
Here are some examples for using the Macd divergence
This is called the Two Divergence
The SPX indicator in this case, when we focus on the price, came after a very clear Macd divergence between the Macd and the price itself. After a significant and long uptrend, the price is beginning to lose power, the candles are very small and tight and the price is struggling to move up.
After this uptrend there is a high, there is a high before the last high and the last high, the last high is higher than the previous one, like we usually see in uptrends.
At the same time, we can see clearly how the Macd divergence creates a lower high
This is the divergence between the price and the indicator.
The price creates a higher high = the line goes up, and the indicator creates a lower high = the line goes down. This is called a two divergence. that’s what usually happens after a divergence, a reversal – the momentum switches from bullish to bearish or we get a technical correction.
This is called the Third divergence
This pattern looks for a very rare but powerful situation which is a three divergence in raw between MACD and the price action,
It usually identifies significant technical correction or even reversal opportunities.
This video demonstrates the trading strategy called the powerful third macd divergence:
Let’s see another example
In this case, we have a third divergence, there are three highs, each one higher than the previous one
while the Macd indicator has 3 highs, each one lower than the previous one
When we see 3 divergences between the price and the Macd it’s a bit more reliable than 2 divergences.
Macd Divergence Strategy Conclusion
The macd divergence by itself is not enough to help us make a decision about opening a position, It just gives us a clue that a reversal or a technical correction might come soon and we should be looking for a sell position. I always suggest that you combine the indicator divergence and the price itself. After I get this divergence, if I get a new supply or if the price came with the divergence to a supply level that I identify, that would be a great reason to sell.
Click here for our complete guide – Supply and demand forex the highest accuracy method
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