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Moving Average Convergence and Divergence MACD Classic Bullish and Bearish Divergence

Moving Average Convergence and Divergence MACD Classic divergence is used as a possible sign for a indices trend reversal. Classic divergence is used when looking for an area where stock indexes price could reverse and start going in the opposite direction. For this reason 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 stock indexes trading market top or buy near the stock indexes trading market bottom, this makes the risk on your trades are very small relative to the potential reward.

2. It is used to predict the optimum point at which to exit a Indices trade.


There are two types:


  1. Indices Trading Classic Bullish Divergence

  2. Indices Trading Classic Bearish Divergence


Indices Trading Classic Bullish Divergence

Classic bullish divergence occurs when stock indexes price is making lower lows (LL), but the oscillator is making higher lows (HL).

Moving Average Convergence and Divergence MACD Indices Trading Classic Bullish Divergence

Moving Average Convergence and Divergence MACD Indices Trading Classic Bullish Divergence


Classic bullish divergence warns of a possible change in the indices trend from down to up. This is because even though the stock indexes price went lower the volume of sellers that pushed the stock indexes price lower was less as illustrated by the Moving Average Convergence and Divergence MACD indicator. This indicates underlying weakness of the downward trend.


Classic bearish divergence

Classic bearish divergence occurs when stock indexes price is making a higher high (HH), but the oscillator is lower high (LH).

Moving Average Convergence and Divergence MACD Classic bearish divergence

Moving Average Convergence and Divergence MACD Indices Trading Classic Bearish Divergence


Classic bearish divergence warns of a possible change in the indices trend from up to down. This is because even though the stock indexes price went higher the volume of buyers that pushed the stock indexes price higher was less as illustrated by the Moving Average Convergence and Divergence MACD indicator. This indicates underlying weakness of the upward trend.

 

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