How to Use MACD in Real Trading

A Powerful Technical Indicator - MACD

Moving Average Convergence Divergence (MACD) is one of the most commonly used momentum oscillators. It is simple and practical.

The MACD indicator consists of three elements: the MACD line, a signal line, and a histogram.

The MACD line shows the divergence between two averages, which reflects the potential trend.

The signal line is derived from the MACD line. As the name implies,  it is used to find trading signals.

The histogram is the difference between the MACD line and the signal line. It mainly helps us visualize the momentum.

There are two common MACD strategies.

No.1, MACD crossover strategy.

Since the signal line lags behind the MACD line when the MACD line crosses above the signal line, it sends a bullish signal; conversely, when the MACD line crosses below the signal line, it generates a bearish signal.

No.2, divergence trading strategy.

Divergence in technical analysis describes a situation where the price of an asset and an indicator are moving in opposite directions...

In a downtrend, if the stock price makes a lower low, but the MACD line trends higher than the previous low, it is called bottom divergence or bullish divergence, which indicates a potential bullish reversal;

similarly, in an uptrend, if the stock price makes a higher high while the MACD shows a lower high, it is called top divergence or bearish divergence, which indicates a potential bearish reversal.

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