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Using MACD Divergence

Using MACD Divergence

Richard Krivo, Trading Instructor

Instructor's Response:

 
You are correct...
 
It is not an entry signal but rather an indication of the bias of the pair based on current momentum.
 
For example, price may be going higher but MACD is moving lower and that would be negative divergence.  So, momentum is showing that going forward this pair has a bearish bias to it even though price is not indicating that currently.
 
Using the above example, let's say the pair is trading at a resistance level and the question is will price action break through to the upside.  Since MACD is showing divergence to the downside, the higher probability trade would be to take a short position when the MACD crossover occurs to the downside and/or when price action does not trade through the resistance level.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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