One popular short-term set-up, for example, is the 5,35,5. This indicates an oversold MACD signal. Note in the first case, the moving average convergence divergence gives us the option for an early exit, while in the second case, the TRIX keeps us in our position.
Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal suggesting that price is likely to gain upward momentum. However, the MACD moving average failed to make a new high. If the MACD crosses below its signal line following a brief move higher within a longer-term downtrend, traders would consider that a bearish confirmation.
The other problem is that divergence doesn't forecast all reversals. Divergence[ edit ] A "positive divergence" or "bullish divergence" occurs when the price makes a new low but the MACD does not confirm with a new low of its own.
This is often interpreted as price taking a breath and being uncertain of the direction of the market. The periods used to calculate the MACD can be easily customized to fit any strategy, but traders commonly rely on the default settings of and day periods.
Trend-following entry During ranges, the two lines from your MACD are very close together and they hover around 0; this means that there is no momentum and no strength.
On the other hand, falling negative MACD values suggest that the downtrend is getting stronger, and that it may not be the best time to buy. The greater the volatility, the less likely the MACD or any other indicator for that matter will accurately forecast price movement.
A MACD crossover of the signal line indicates that the direction of the acceleration is changing. When a stock, future, or currency pair is moving strongly in a direction, the MACD histogram will increase in height.