How to Use the MACD Technical Indicator - Part 2
In this part 2 of the MACD video series, the speaker explains the indicators' "forecasting capabilities". The speaker also identifies signals that are more reliable than the commonly used MACD/signal line crossovers.
He mentions that even though the MACD line is the most common and well known, it produces false signals causing a "whipsaw type action", pointing out that the MACD centerline crossover and divergence with price signals are more reliable. Through a price chart with a bullish centerline crossover, the speaker explains that even though the MACD centerline crossover is a lagging signal, it’s reliable for longer term moves. With two other charts, he explains that even though divergence is the least frequent signal generated by MACD, it’s reliable in indicating a bullish or bearish move, and the change in direction of the momentum.
Quotes from the video
- Though the centerline crossovers have been proven to be very much a lagging signal they have also proven to be fairly reliable for longer term moves
- Divergence that MACD has with price, although again it’s the least frequent signal that MACD sends out is the most powerful, produces the biggest moves, and is also the most reliable signal
- The signal line being crossed is the confirmation that a divergence has occurred.