| How the MACD Is Used | | | | between the MACD line and the price action of the |
| In the stock market today, traders use a number of | | | | stock. When the stock records a lower low but the |
| different techniques to help them identify which | | | | MACD forms a higher low, a bullish divergence |
| company will be a good stock pick. Technical analysis | | | | develops. Bullish Divergences tend to occur during |
| is widely used to understand or predict how a | | | | strong downtrends and caution should be exercised |
| particular stock may move. Technical indicators are | | | | during a divergence. A bearish divergence will occur |
| used to help determine whether an asset is trending, | | | | when the stock records a higher high and the MACD |
| and in which direction it is doing so. One of the | | | | forms a lower high. During a strong uptrend, it is |
| simplest and most effective momentum indicators | | | | common to see bearish divergences. |
| available is the Moving Average Convergence / | | | | The MACD can sometimes give false signals, so it |
| Divergence or MACD. It highlights the relationship | | | | advisable to look at other indicators to help avoid this. |
| between two exponential moving averages and | | | | Some analysts use other indicators like the Relative |
| shows the difference between the moving averages | | | | Strength Index to filter out false signals. This is |
| as a signal line. The MACD will fluctuate between | | | | important to do when you are stock picking, as it |
| positive and negative values above and below a | | | | helps to avoid buying or selling at the wrong time. |
| signal line. | | | | Because the MACD works by looking at differences |
| When you are trading stocks, and you see the | | | | in moving averages, it is only useful as trends change. |
| MACD fall below the signal line, this indicates a bearish | | | | If the market or stock has a flat trend or is erratic, |
| trend, and it may be wise to sell. However, if it rises | | | | the MACD will be less effective. |
| above the signal line, it is an indication of a bullish | | | | MACD is not good at providing stock tips, and cannot |
| trend, and may see the stock rise in value. Traders | | | | accurately tell you which are overbought or oversold. |
| call these "Signal Line Crossovers", as the MACD | | | | You can use it to look at stock market trends so |
| crosses above and below the signal line. | | | | that you have an idea of when it may be a good |
| Divergence occurs when there is a discrepancy | | | | time to enter the market. |