MACD Analysis Buy and Sell Trading Signals
Since the MACD uses 26 & 12 EMA to plot, we shall compare these 2 EMAs with the MACD to figure out how these buy & sell Index signals are generated.
MACD - Example of MACD Indicator
The MACD is a leading indicator meaning it generates Index signals that are leading compared to price action as opposed to lagging indicators which lag behind the price.
Buy Trade
A buy trade is generated/derived when there's a MACD fast line crosses above signal line. However, as with any leading indicator these signals are prone to whipsaws/ fake outs.
To eliminate the whipsaws it is good to wait out for confirmation of the buy or sell Index signals. The confirmation Index signal is when the 2 lines cross above the zero mark, when this happens the buy derived & generated is a reliable signal.
In the illustration revealed below, Moving average indicator derived & generated a buy signal, before price started to move up. But it was not until the MACD moved above the zero line that buy signal was confirmed, & the MAs also gave a crossover signal. From experience its always good to buy after both the MACD lines move above zero center-line mark.
Where to Buy using MACD - Buy Signal
Sell Trade
A sell Index signal gets generated/derived when there's a MACD fast line crosses below signal line. However, just like the buy signal, these are also prone to whipsaws/ fake-outs signals.
To eliminate the whipsaws its good to wait for confirmation of the sell Index signal. The confirmation is when the 2 lines cross below zero mark, when this happens the sell signal derived/generated is a reliable signal.
In the example revealed below, Moving average generated a sell signal confirmed after MACD moved below zero line at the same time that the MAs Moving Averages gave a crossover signal.
Where to Sell using MACD - Sell Signal
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