MACD XAUUSD Whipsaws and Fake Out Signals on Bearish and Bullish Territory
Since the MACD indicator is a leading indicator which sometimes gives fake outs, we shall look at an example of a whipsaw fakeout generated by this MACD indicator, so as to illustrate why it's always good to wait for a confirmation signal.
MACD Indicator Whipsaw - XAUUSD Whipsaws
The MACD indicator gave a buy signal, when this buy signal was generated and MACD indicator line was still below the zero center line mark. At this point the buy signal had not been confirmed & it resulted into a fake out as displayed by the moving averages which continued to move downwards.
A xauusd whipsaw signal is as a result of dramatic rise and fall in the price in a short time and in such a manner that skews the data used in calculating the moving averages that draw the MACD indicator data. These types of fake out moves are usually brought about because of some news event that can produce market noise.
Traders should have the ability to gauge a whipsaw and withstand the whipsaw; a whipsaw might result into an upswing session and then a downswing session. To minimize the risk of trading whipsaw fakeouts, it's good to wait for confirmation of signals by waiting for MACD to cross above or below the zero center-line mark.
Combining MACD Cross over with Center-Line Cross over to Prevent Whipsaws
Buy signal - When there is a cross over, followed by a steep rise in price and then a center-line crossover the buy signal is confirmed.
Sell signal - When there is a cross over, followed by a steep decline in price & then a center-line crossover the sell signal is confirmed.
1. Buy Signal in Bearish Territory Whipsaw
When a buy signal is generated in a bearish territory, it might result into a xauusd whip saw especially if it is not followed soon by a MACD center line crossover.
In the example shown below, MACD indicator gives a buy signal even though it is in bearish territory, the MACD indicator then turns downwards & starts moving down again resulting into a xauusd whipsaw. By waiting for center line crossover it is possible to avoid the fake out.
However, in this case there was a brief center-line crossing: this whipsaw fakeout would have been hard to trade using this MACD indicator alone, that is why it is good to combine the use of MACD indicator with another indicator. In the example shown below MACD is combined with the moving average indicators analysis.
MACD XAUUSD Whipsaw - Buy Signal in Bearish Territory
2. Sell Signal in Bullish Territory Whipsaw
When a sell signal is generated in a bullish territory, it might result into a xauusd whip saw especially if it is not followed soon by a MACD center-line crossover.
In the example illustrated below, the MACD indicator gives a sell signal even though it is in bullish territory, the MACD indicator then turns up & starts moving upward again resulting into a fake out. By waiting for center-line crossover it is possible to avoid the whipsaw fakeout. In the example shown below by combining this MACD indicator with the MA Crossover Strategy you would have avoided this whipsaw.
MACD XAUUSD Whipsaw - Sell Signal in Bullish Territory
To avoid fake outs completely when trading the market with this MACD Indicator it is best to use the Center-line Crossover Signal as the Official Buy or Sell Signal of the MACD Indicator.
