Educational Series: Trading with the MACD (Part 2)
In Part 1, sell signals were identified, which met the 3 conditions of
1) Previous Trend,
2) Reaction to a resistance level, and
3) Crossover above the Zero line.
In Part 2, we look at sell signals where the 3 conditions have not been met, which will highlight the importance of keeping disciplined to wait for a good setup (when the conditions are met)
In examples 1 to 4, 5 and 6, the crossover occurs below the zero line. The price continues to trade lower but quickly reverses or consolidates. Trades would have low profitability in these scenarios.
However, there are examples where, despite the crossover occurring below the zero line, the downtrend and strong reaction at key support/resistance levels have compensated for the less-than-optimal crossover signal.
When less conditions are met, the results of the trade become significantly less profitable and less predictable.
1) Previous Trend,
2) Reaction to a resistance level, and
3) Crossover above the Zero line.
In Part 2, we look at sell signals where the 3 conditions have not been met, which will highlight the importance of keeping disciplined to wait for a good setup (when the conditions are met)
In examples 1 to 4, 5 and 6, the crossover occurs below the zero line. The price continues to trade lower but quickly reverses or consolidates. Trades would have low profitability in these scenarios.
However, there are examples where, despite the crossover occurring below the zero line, the downtrend and strong reaction at key support/resistance levels have compensated for the less-than-optimal crossover signal.
When less conditions are met, the results of the trade become significantly less profitable and less predictable.
