How to Use MACD to Confirm a Trend
So how do we spot a trend?
The indicators that can do so have already been identified as MACD and moving averages.
These indicators will spot trends once they have been established, at the expense of delayed entry.
The bright side is that there’s less chance of being wrong.
On GBP/USD’s daily chart above, we’ve put on the 10 EMA (blue), 20 EMA (red), and the MACD.
Around October 15, the 10 EMA crossed above the 20 EMA, which is a bullish crossover. Similarly, the MACD made an upward crossover and gave a buy signal.
If you jumped in on a long trade back then, you would’ve enjoyed that nice uptrend that followed.
Later on, both the moving averages and MACD gave a couple of sell signals.
And judging from the strong downtrends that occurred, taking those short trades would’ve given huge profits.
We can see those dollar signs flashing in your eyes!
Now let’s look at another chart so you can see how these crossover signals can sometimes give false signals.
We like to call them “fakeouts.”
On March 15, the MACD made a bullish crossover while the moving averages gave no signal whatsoever.
If you acted on that buy signal from the MACD, you just suffered a fakeout, buddy. Similarly, the MACD’s buy signal by the end of May wasn’t accompanied by any moving average crossover.
If you entered a long trade right then and there, you might’ve set yourself up for a loss since the price dipped a bit after that.
Reprinted from Babypips，the copyright all reserved by the original author.
Disclaimer: The content above represents only the views of the author or guest. It does not represent any views or positions of FOLLOWME and does not mean that FOLLOWME agrees with its statement or description, nor does it constitute any investment advice. For all actions taken by visitors based on information provided by the FOLLOWME community, the community does not assume any form of liability unless otherwise expressly promised in writing.