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