subject: MACD Bullish And Bearish Divergence [print this page] MACD Bullish And Bearish Divergence MACD Bullish And Bearish Divergence
First read the article on the Moving Average Convergence Divergence (MACD) to know what is the MACD black line and the signal or the trigger grey line plus and what is a MACD histogram. When the MACD line crosses above the signal line or the trigger line, this is known as the MACD cross or a Moving Average Crossover. When the MACD line is above the trigger line, it supports a long position and when the MACD line is below the trigger line, it supports a short position.The crossover of the MACD line and the trigger line close to the zero line provides information whether the trigger is in the direction of the current trend. A cross of the black line below the gray line that occurs below the zero line is a sell signal in the direction of the current trend. Whereas the cross of the black line above the gray line below the zero line is a counter trend buy signal. When the black line crosses above the grey line above the zero line, it is a trend buy signal and when the black line crosses below the grey line above the zero line, it is a counter trend sell signal.However, MACD divergence is a much more significant signal. Divergence takes place when price is moving higher and higher whereas the MACD line is moving lower and lower or vice versa. Bullish Divergence or Positive Divergence takes place when price action is making lower lows while MACD is making higher lows. Similarly, when price action is making higher lows and MACD is making lower highs, it is knows as a Negative or Bearish Divergence.However, sometimes you will find double or triple divergence before the market makes a turn. Divergence over a shorter period of time is a much stronger signal than divergence over a longer period of time.Markers tend to exhibit divergence before they make a reversal. But you will also find market making a divergence before a regular consolidation period.Now, you will also find divergence between the MACD histogram and the price action. This divergence should be considered significant. Short term divergence appears on the histogram much earlier and is considered to be more significant as compared to the MACD regular divergence.Always exit your position when you find the momentum waning on the MACD histogram on the opposite direction of the current trend or you find the MACD making a cross.
