MACD Stock Index Classic Bullish & Bearish Divergence
MACD Stock Index Classic divergence is used as a possible sign for a trend reversal. MACD classic divergence is used when looking for an area where price could reverse and start going in the opposite trend direction. For this reason MACD classic divergence is used as a low risk entry method and also as an accurate way of exit out of a trade.
1. It is a low risk method to sell near the market top or buy near the market bottom, this makes the risk on your trades are very small relative to potential reward.
2. It is used to predict the optimum point at which to exit a trade
There are two types of Indices Classic Divergence:
- Classic Bullish Divergence Setup
- Classic Bearish Divergence
Classic Bullish Divergence in Stock Index Trading
Classic bullish divergence setup in Stock Indices occurs when price is making lower lows (LL), but the oscillator is making higher lows (HL).
MACD Classic Bullish Divergence - MACD Divergence Trading Strategy
Classic bullish divergence setup in Stock Indices warns of a possible change in the trend from downwards to upwards. This is because even though the market price went lower the volume of the sellers who pushed the price lower was less as illustrated by the MACD indicator. This indicates underlying weakness of the downward market trend.
Classic bearish divergence in Stock Indices Trading
Classic bearish divergence in Indices occurs when price is making a higher high (HH), but the oscillator is lower high (LH).
MACD Classic Bearish Divergence in Stock Indices - MACD Divergence Trading Strategy
Classic bearish divergence setup warns of a possible change in the market trend from upwards to downwards. This is because even though the market price went higher the volume of the buyers who pushed the price higher was less as illustrated by the MACD indicator. This indicates underlying weakness of the upward market trend.
