What do you think when you think MACD?
This is definitely not the MAC-D we’re talking about today. The MACD we’re talking about is the Moving Average Convergence/Divergence Indicator. The indicator was developed by Gerald Appel and is widely being adopted in the financial market such as equity, futures, FX and CFD.
So, why is it that sometimes despite being widely used we still hear complains of the indicator not working as well as advertised? Basically one needs to understand how the MACD indicator actually works. The MACD actually functions on the basis of Trend & Momentum. Traders can use it as a signal for entry and exit by identifying the line crossovers, convergence and divergence.
Today is your lucky day! We’re gonna let you into 3 great methods of identifying a potential stock with the MACD. let’s get started!
1. The Golden Cross
In the event when the MACD line crosses over the signal line, it is an indicator of a possible bullish trend. However being below the ‘0’ region, it is possible that the indication means a technical rebound rather than a reversal pattern.
2. Histogram bar above zero
A very simple rule to follow, observe that the histogram bar is above zero. It is another indicator of a bullish trend.
3. MACD and Signal above zero
Another important rule, notice as both the MACD and Signal line are above the zero region it indicates a bullish signal.
With the 3 criteria fulfilled, the chances of selecting a money-making bullish stock gets higher.
In a nutshell, MACD is great for identifying momentum and trend but isn’t good when it comes to detecting whether the stock is overbought or oversold. Simply said, one indicator isn’t enough to get hold of an ultimate stock. A great trader should have more secrets up their sleeves.
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