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MACD Stock Indices Whipsaws and Fake Out Signals on Bearish and Bullish Territory

Since the MACD stock indices indicator is a leading indicator which sometimes gives whipsaws, we shall look at an example of a stock indices whipsaw generated by this MACD stock indices indicator, so as to illustrate why it's always good to wait for a confirmation stock indices signal.

Stock Indices Whipsaws

MACD Stock Indices Indicator Stock Indices Whipsaw - Stock Indices Whipsaws


The MACD indicator gave a buy stock indices signal, when this buy stock indices signal was generated and the MACD indicator line was still below the zero center line mark. At this point the buy stock indices signal had not been confirmed and it resulted into a stock indices whipsaw as illustrated by the moving averages which continued to move downwards.


A stock indices whipsaw signal is as a result of dramatic rise and fall in the stock index price in a short time and in such a manner that skews the data used in calculating the moving averages that draw the MACD stock indices indicator data. These types of whipsaw moves are usually brought about because of some news event that can produce market noise.


Traders should have the ability to gauge a stock indices whipsaw and withstand the whipsaw; a stock indices whipsaw might result into an upswing session and then a downswing session. To minimize the risk of trading stock indices whipsaws, it's good to wait for confirmation of stock indices signals by waiting for MACD to cross above or below the zero center-line mark.


Combining MACD Crossover with Center-Line Crossover to Prevent Stock Indices Whipsaws

Buy stock indices signal - When there is a crossover, followed by a steep rise in stock index price and then a center-line crossover the buy stock indices signal is confirmed.


Sell stock indices signal - When there is a crossover, followed by a steep decline in stock index price and then a center-line crossover the sell stock indices signal is confirmed.




  • 1. Buy Stock Indices Signal in Bearish Territory Whipsaw


When a buy stock indices signal is generated in a bearish territory, it might result into a stock indices whipsaw especially if it is not followed soon by a MACD center line crossover.


In the stock indices example illustrated below, MACD stock indices indicator gives a buy stock indices signal even though it is in bearish territory, the MACD indicator then turns downwards and starts moving down again resulting into a stock indices whipsaw. By waiting for center line crossover it is possible to avoid the whipsaw.

However, in this case there was a brief center line crossing; this stock indices whipsaw would have been hard to trade using this MACD stock indices indicator alone, that is why it is good to combine the use of MACD indicator with another stock indices technical indicator. In the stock indices example illustrated below MACD is combined with the moving average stock indices indicators technical analysis.


Buy Stock Indices Signal in Bearish Territory

MACD Stock Indices Whipsaw - Buy Stock Indices Signal in Bearish Territory




  • 2. Sell Stock Indices Signal in Bullish Territory Whipsaw


When a sell stock indices signal is generated in a bullish territory, it might result into a stock indices whipsaw especially if it is not followed soon by a MACD center-line crossover.


In the stock indices example illustrated below, the MACD stock indices indicator gives a sell stock indices signal even though it is in bullish territory, the MACD stock indices indicator then turns up and starts moving upwards again resulting into a stock indices whipsaw. By waiting for center-line crossover it is possible to avoid the stock indices whipsaw. In the stock indices example illustrated below by combining this MACD indicator with the Moving Average Crossover Stock Indices Strategy you would have avoided this whipsaw.

Sell Stock Indices Signal in Bullish Territory

MACD Stock Indices Whipsaw - Sell Stock Indices Signal in Bullish Territory


To avoid stock indices whipsaws completely when trading the stock indices market with this MACD Stock Indices Indicator it is best to use the Center-line Crossover Signal as the Official Buy or Sell Stock Indices Signal of The MACD Stock Indices Indicator.

 

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