✔️ Information reviewed and updated in November 2023 by Eduardo López
Learning to operate and interact in the imperfect world is extremely important in trading. Today we will talk about MACD divergences, their importance, their interpretation and why you should consider them within your operations.
The trends represent a simple way to cover all the imperfections of the strategies within the market. They can change at any time, so technical indicators should be used to determine at what points a change in direction is likely to occur.
✨What is MACD? ✨
MACD is the acronym for Moving Average Convergence / Divergence. In the stock market it is usually implemented to measure how robust the price movement is. Through the crossing of the line of this indicator and especially the moving average, it is possible to capture buy and sell signals.
This indicator is responsible for measuring the divergence and convergence of the price with respect to an asset in a market, allowing you to analyze the price behavior and the market trend. MACD is often used in cryptocurrency trading.
It is important to remember that this indicator is made up of two MACD lines and the histogram.
✨How is the MACD used? ✨
MACD lines can be used in two different ways, either by buying and selling through the crossovers between these two or by buying when they both go above zero and selling when they go negative.
You must bear in mind that the first will always be more nervous and the second will be more oriented to a medium or long-term operation, where you can be willing to take strong corrections.
✨What are MACD divergences? ✨
This is the intermediate power divergence and they are responsible for anticipating turns on most occasions, always within a logical bounce scheme. These divergences are quite rare.
On some occasions there are usually significant divergences of MACD or MACDh in the weekly charts, when this occurs you should be very careful as it is a sign that important changes are coming.
The most striking divergences are those of the MACD histogram. If a bearish divergence appears on the weekly chart histogram, it is highly recommended that you should not buy. Before that it is better to sell or even think about being supported by a favorable environment before doing so.
✨ What are its advantages compared to other indicators? ✨
When an indicator is robust, it tends to generate positive ideas regarding its multifunctional capacity, since they tend to perform well in all kinds of scenarios and markets. They don't need precise calibration to be able to trust their signals.
The MACD has an oscillating behavior. And oscillators require good settings to be able to provide useful signals, so the MACD is the great exception to this rule since it is extremely stable. Their are reliable on most charts, markets, and time frames, so there is no need to change series settings.