MACD, Moving Average Convergence Divergence, is a popular indicator used by many traders but very few people really understand about it. The MACD divergence signal is one of the very popular ways that traders use to trade reversals. But the reality shows that the divergence signal appears very random, the accuracy is extremely poor.

This article will show some important points for you to know how to use MACD and avoid trading false signals when using this indicator.

Mistakes in using MACD divergence after a strong drop or rally

Divergence signals always occur after a large market move (strong movement to one side). Because the market cannot move continuously, you will find at some point in the market, after a big move, the price will start to slow down. The bearish momentum will affect the MACD and cause this indicator to appear as a "higher high, higher low" like the chart you are looking at. Mistaking the market to have reversed, Trader will enter an order but in fact the market only moves slowly before regaining the momentum to continue moving in the old trend.

Therefore, you should pay attention to this when using MACD divergence: absolutely do not use MACD to trade against the trend, especially after a big trend.

Mistakes in identifying MACD divergence signals with prices on the chart

This is one of the mistakes that many traders often make. During a major pullback, the price makes consecutive lower lows but the MACD makes higher lows (as the chart below shows).

Making a higher low on the MACD only shows that price momentum is pointing down, meaning that the market's rate of decline is slowing down compared to the old impulse wave. That doesn't mean the market has reversed. 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 trade reversals, but it has a lot of noise. Instead, you should focus more on price. For example, instead of trying to catch the bottom high when the MACD has just shown a divergence, you can wait 1 beat and wait for the price to make higher highs and higher lows (the market moves from downtrend to uptrend). ) or vice versa forming a lower high, a lower low to trade with the trend. At this point, MACD is only a support, no longer the main factor to decide on a trade.

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