MACD Technical Analysis Buy and Sell Signals

Since the MACD indicator uses 26 and 12 EMA to plot, we shall compare these two EMAs with the MACD indicator to determine how these buy and sell signals are generated.

MACD Indicator - Example of MACD Indicator

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's a MACD fast line crosses above signal line. However, as with any leading indicator these signals are prone to whip-saws/fake-outs.

To eliminate the whipsaws it's good to wait for confirmation of the buy or sell 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 and illustrated below, the Moving Averages 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 signal was confirmed, and the Moving Averages also gave a crossover 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 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 whipsaws it is good to wait for confirmation of the sell 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 and illustrated 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 Signal