MACD Classic Bullish & Bearish Divergence Trade Setup
MACD Classic divergence setup is used as a possible sign for a trend reversal. MACD classic divergence is used when looking for an area where price could reverse & begin going in the opposite market trend direction. For this reason MACD classic divergence setup is used as a low risk entry method and also as an accurate way of exiting out of a trade.
1. It is a low risk method to sell near the trading market tops or buy near the trading market bottom, this makes the risk in your stock trade positions are small compared to the potential reward.
2. It's used to predict the optimum point at which to exit a trade position transaction.
There are 2 types of Classic Divergence:
- Index Classic Bullish Divergence
- Index Classic Bearish Divergence
Index 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 forming/making higher lows (HL).
MACD Classic Bullish Divergence in Stock Index - MACD Divergence Strategy
Classic bullish divergence in indices warns of a possible change in the trend from downwards to upward. This is because even though price moved & headed lower the volume of sellers that moved price lower was less as portrayed by the MACD technical indicator. This signals underlying weakness of the downwards trend.
Classic bearish divergence in Indices Trading
Classic bearish divergence in indices trading occurs when price is making/forming a higher high (HH), but the oscillator trading is lower high (LH).
MACD Classic Bearish Divergence in Indices - MACD Divergence Strategy
Classic bearish divergence signals a possible shift in the market trend from upwards to downward. This is because even though price moved & headed higher the volume of buyers(bulls) who moved the price higher was less as portrayed by the MACD indicator. This reflects the underlying weakness of the upward trend.
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