Mistake to use MACD divergence signals after a sharp decline or increase


Divergence signals always happen after a large market move (strong volatility on one side). Because the market cannot move continuously forever, you will find that at some point in the market, after a large move, the price will start to go slowly. The bearish momentum will affect the MACD and cause this indicator to appear as "higher highs, higher lows" like the chart you are looking at. Thinking that the market has reversed, Traders will enter orders, but in fact, the market just moves slowly before regaining motivation to continue moving in the old trend.

So, pay attention to this when using MACD divergence: absolutely don't use MACD to trade against the trend, especially after a big trend.

Error in identifying the MACD divergence with the prices on the chart

You notice, this is one of the mistakes that you see in many common Traders. During a large price drop, the price created continuously lower lows but the MACD created a higher low (as shown in the chart below).


Creating a higher low on the MACD only indicates that the momentum of the price is decreasing, meaning that the rate of decline of the market is slowing down compared to the old push wave. This does not mean the market has reversed. Or in other words, moving slowly means that the trend is still there but the trend has not completely reversed.

MACD can be a good tool to help you reverse trade, but it has enormous noise. Instead, you should focus more on price. For example, instead of trying to bottom the top when the MACD has just signaled a divergence, you could wait for a beat and wait for the price to make a higher high, a higher low (the market moves from a downtrend to an uptrend. ) or vice versa form a lower high, a lower low for trend trading. At this point, the MACD is only supportive, no longer a key factor in deciding to trade.

It is important to know: Traders make money on price movements, not indicators.