Continue reading...MACD divergence is discussed in most trading books and frequently cited as the reason for trend reversals, or as to why a trend could reverse. In hindsight divergence looks great; many examples can be found where a reversal was preceded by MACD divergence. Look closely though, and you’ll find that many reverses aren’t preceded by divergence, and often divergence doesn’t result in a reversal at all. So before assuming divergence is a reliable tool to use in your trading, let’s dig deeper into what MACD divergence is, what causes it, and how to improve the use of divergence.
What is Indicator Divergence? Indicator divergence is when an oscillator or momentum indicator, such as the Moving Average Convergence Divergence (MACD) indicator, doesn’t confirm the movement of price. For example, a stock price makes a new high while the MACD or RSI indictor makes a lower high.
SPDR S&P 500 ETF (SPY) Weekly Chart Showing MACD Divergence During Uptrend...
Last edited by a moderator: