Macd

MACD divergence

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Hey,
what exactly is a price divergence in a MACD indicator because i keep on coming across conflicting info. From people that i have spoken to who trade using a price divergence in the MACD indicator as one of their indicators, the positions they open saying that there is a divergence i fail to see... From what i learnt a price divergence can be seen in the MACD histogram, image is below. This is when the prices peaks, then makes a new higher peak, but the bars on MACD histogram fail to exceeded the high of the previous peak even tho its higher. What else qualifies as a divergences and what are the two lines for?


Many thanks

Kevin

A good explanation of the MACD Indicator can be found here:

http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:moving_average_conve

Usually, the MACD will have a FAST LINE, a SLOW LINE and a HISTOGRAM. The FAST LINE is the actual MACD Indicator. This indicator (FAST LINE) is the difference between two exponential moving averages on the price chart. The popular version is a 12,26,9 MACD. This means that the FAST LINE or MACD is the difference between a 12 period and 26 period exponential moving average on the price chart. If you put a 12 period and 26 period exponentail moving average on the price chart, you will notice that the MACD or FAST LINE on the indicator will cross the zero line when the two exponential moving averages on the price chart cross each other.

The SLOW LINE is the 9 period exponential moving average of the FAST LINE. The HISTOGRAM is the difference between the FAST LINE and SLOW LINE.

The referenced web site explains what a positvie and negative divergence is. Basically, a divergence occurs when the price chart makes a lower low while the FAST LINE or MACD makes a higher low and vice versa. This sometimes indicates that momentum of a trend may be weakening.

Charles

Kevin21 said:

MACD divergence

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Hey,
what exactly is a price divergence in a MACD indicator because i keep on coming across conflicting info. From people that i have spoken to who trade using a price divergence in the MACD indicator as one of their indicators, the positions they open saying that there is a divergence i fail to see... From what i learnt a price divergence can be seen in the MACD histogram, image is below. This is when the prices peaks, then makes a new higher peak, but the bars on MACD histogram fail to exceeded the high of the previous peak even tho its higher. What else qualifies as a divergences and what are the two lines for?


Many thanks

Kevin

Click to expand...

Regular and Hidden divergence.

http://www.trading-naked.com/Divergence.htm