MACD Analysis Buy and Sell Signals
Given that the MACD uses the 26 and 12 exponential moving averages for plotting, we will compare these two EMAs with the MACD to understand how buy and sell signals are generated.
MACD Indicator - Example of MACD Indicator
The MACD is categorized as a leading indicator, meaning it produces signals that lead price action, unlike lagging indicators that follow behind the index price.
Buy Indices Trade
A trade signal to buy Indices is generated when the faster line of the MACD crosses over the slower signal line. Nevertheless, like all leading indicators, signals from Indices derived this way are vulnerable to false movements or whipsaws.
To avoid false signals, wait for buy or sell confirmation. A solid index signal occurs when both lines cross above zero.
In the example of indices provided, the MAs Stock Indices indicator produced a buy signal before the price started its upward movement. The buy signal was validated when the MACD crossed above the zero line, and corroborated by a crossover from the MAs. Experience suggests that entering a buy position after both MACD lines cross the zero center line is prudent.
Where to Buy using MACD Indicator - Buy Trading Signal
Sell Trade
You get a sell signal when the MACD fast line drops below the signal line. But just like with buy signals, these can still throw you off with fake-outs and whipsaws.
To avoid false signals, it is advisable to wait for confirmation before acting on a sell signal. Confirmation occurs when two lines cross below the zero marker, signaling a more dependable indication to sell.
In the accompanying Index illustration, a sell signal was generated by the Moving Averages, which was subsequently corroborated when the MACD indicator dropped below the zero line concurrently with the crossover signal provided by the MAs.
Analyze Where to Open Sell using MACD Indicator - MACD Sell Signal
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