MACD Classic Bullish and Bearish Divergence
MACD Classic divergence is used as a possible signal 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 trade transactions are small relative to potential reward.
2. It's used to predict the optimum level at which to exit a trade.
There are two types of Classic Divergence:
- Indices Classic Bullish Divergence
- Indices 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 Classic Bullish Divergence in Indices - MACD Divergence Strategy
Classic bullish divergence in indices warns of a possible change in the trend from downwards to upwards. This is because though the price moved lower the volume of sellers that moved 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 price is making a higher high (HH), but the oscillator indicator 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 downwards. This is because though the price moved higher the volume of buyers that moved price higher was less as portrayed by the MACD indicator. This indicates underlying weakness of the upwards trend.
