MACD Indices Classic Bullish and Bearish Divergence

MACD Indices 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's a low risk method to sell near the trading market tops or buy near the trading market bottom, this makes the risk on your stock trades are very small relative to the potential reward.

2. It's used to predict the optimum level at which to exit a trade.

There are two types of Indices Classic Divergence:

1. Indices Trading Classic Bullish Divergence
2. Indices Trading Classic Bearish Divergence

Indices Classic Bullish Divergence in Indices Trading

Classic bullish divergence in indices trading occurs when price is making lower lows (LL), but the oscillator indicator is making higher lows (HL).

MACD Indices Classic Bullish Divergence in Indices Trading - MACD Divergence Strategy

Classic bullish divergence in indices trading warns of a possible change in the trend from down to up. This is because even though the price went lower the volume of sellers who pushed the price lower was less as portrayed by the MACD indicator. This shows underlying weakness of the down ward trend.

Classic bearish divergence in Indices Trading

Classic bearish divergence in indices trading occurs when trading price is making a higher high (HH), but the oscillator indicator is lower high (LH).

MACD Indices Trading Classic Bearish Divergence in Indices Trading - MACD Divergence Strategy

Classic bearish divergence warns of a possible change in the market trend from up to down. This is because even though the price went higher the volume of buyers that pushed the price higher was less as portrayed by the MACD indicator. This indicates underlying weakness of the upward trend.