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

Since MACD is a leading indicator that sometimes gives and generates whipsaw fakeouts, we shall look at an example of a fake out generated by this MACD, so as to show why it is always good to chill and wait for a confirmation trading signal.

MACD Indicator Whipsaw - Indices Whipsaws

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

A Indices whipsaw signal is as a result of dramatic rise & fall in the price in a short time & in such a manner that skews the data used in calculating the moving averages that plot the MACD data. These types of fake out moves are mostly brought about due to and because of some news announcement that can produce market noise.

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

Combining MACD Crossover with Centerline Cross-over to Prevent Whipsaw Fake-outs

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

Sell signal - When there is a crossover, followed by a steep decline in price & then a center-line crossover the sell signal gets to be confirmed.

1. Buy Signal in Bearish Territory Whipsaw

When a buy Indices signal is generated in bearish territory, it may result into a fake out especially if it is not followed soon by a MACD center line cross-over.

In the example illustration put on display below, MACD gives and generates a buy Indices signal even though it is in bearish territory, the MACD then turns downward & starts moving down again resulting into a Indices whipsaw. By waiting for center-line crossover it is possible to avoid the whipsaw fakeout.

However, in this case there was a brief centerline crossing: this whipsaw would have been hard to trade using this MACD alone, that's why it's good to combine the use of MACD indicator with another indicator. In the example illustration below MACD is combined with the Moving Average trading indicators technical analysis.

MACD Indices Whipsaw - Buy Trading Signal in Bearish Territory

2. Sell Signal in Bullish Territory Whipsaw

When a sell signal is derived and generated in a bullish territory, it may result into a fake out especially if it isn't followed soon by a MACD center-line cross-over.

In the example illustration below, the MACD gives a sell signal even though it is in bullish territory, the MACD then turns up & starts moving upward again resulting into a whipsaw. By waiting for center line cross-over it's possible to avoid the Index fake out. In the example below by combining this MACD with the Moving Average Cross over Strategy you would have avoided this whipsaw.

MACD Indices Whipsaw - Sell Signal in Bullish Territory

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

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

Combining MACD Crossover with Centerline Cross-over to Prevent Whipsaw Fake-outs