MACD Analysis Buy & Sell Signals
Since MACD indicator uses 26 and 12 EMA to plot, we shall compare these 2 EMAs with MACD indicator to figure out how these buy and sell trade signals are generated.
MACD Indicator - Example illustration 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 derived & 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 is good to wait for confirmation of buy or sell trade signals. The confirmation trading signal is when the 2 lines cross above zero mark, when this happens the buy generated is a reliable trading signal.
In the illustration put on display below, the MAs indicator derived & generated a buy trade signal, before price started moving upwards. But it wasn't until the MACD moved above zero line that the buy signal was confirmed, & the MAs 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/derived when there is a MACD fastline crosses below signal line. However, just like 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 2 lines cross below zero mark, when this happens the sell generated is a reliable trading signal.
In the trading illustration below, the MAs generated a sell confirmed after MACD moved below the zero line at the same time that the MAs Moving Averages gave a cross over trading signal.
Where to Sell using MACD Indicator - Sell Signal
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