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