MACD Analysis Buy and Sell Signals
Since MACD indicator uses 26 and 12 EMA to plot, we shall compare these two EMAs with MACD indicator to determine how these buy and sell trade signals are generated.
MACD Indicator - Example of MACD
The MACD indicator is a leading indicator meaning it generates trading signals that are leading compared to price action as opposed to lagging indicators that lag behind the price.
Buy Trading
A buy trade is generated when there is a MACD fastline crosses above signal-line. However, as with any leading indicator these trading signals are prone to whip-saws/fake-outs.
To eliminate the fake outs it's good to wait for confirmation of the buy or sell trade signals. The confirmation signal is when the two lines cross above the zero mark, when this happens the buy generated is a reliable trading signal.
In the example below, the MAs indicator generated a buy trade signal, before price started moving upwards. But it wasn't until the MACD moved above the zero line that the buy signal was confirmed, & the Moving Averages also gave a crossover signal. From experience its always good to buy after both the MACD lines move above zero center line mark.
Where to Buy using MACD Indicator - Buy Trade Signal
Sell Trade
A sell trading signal gets generated when there is a MACD fastline crosses below signal line. However, just like the buy trade signal, these also are prone to whip-saws/ fakeouts.
To eliminate the whipsaws its good to wait for confirmation of the sell signal. The confirmation is when the two lines cross below the zero mark, when this happens the sell generated is a reliable trading signal.
In the trading example below, the MAs generated a sell confirmed after MACD moved below the zero line at the same time that the Moving Averages gave a cross over trading signal.
Where to Sell using MACD Indicator - Sell Trading Signal
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