Combining MACD Crossovers and MACD-Line

On this page we will show the three interpretations we have learned so far in one example. This can show you how the three signals work together to confirm signals. Of course, it is very important to not rely on only one indicator when placing trades.

1. There is a MACD Sell crossover to end 2004. It is followed by a steep decline in the MACD-Line histogram and then a centerline crossover to bearish phase. The combination of these three factors confirm, according to MACD, the sell signal.
2. MACD-Line hits a low and reverses. It is followed by a Buy MACD line crossover. MACD then heads towards zero and crosses the center line. This centerline cross, again according to MACD, validates the trade. Now the trader would wait for the bull market to peak to sell.
3. Before (3) there is a minor peak, but act on it or no, at (3) there is a MACD line crossover indicating for a trader to Sell. There is a fast decline in the MACD-Line panel towards bearish territory.
4. Caution – This buy crossover signal is suspicious because, using our MACD strategy, we are looking for a buy signal in bearish territory, not in bullish territory. If one longs the euro, there is a sell signal soon, which is in line with the thinking at (3), so a trader using MACD would sell. This sell (or the one from (3)) is followed by a centerline crossover which "validates" the trade.



Wrong Signals



5. In mid-May the histogram looks like it reaches a bottom and there is time to catch the price at this level if one believes price will head back up. A Buy signal is generated when the MACD lines crossover. From our previous analysis of MACD, a trader using this indicator expects the MACD line to keep heading towards zero and price to increase (as is projected on the figure).
6. Market Hiccup – However, contrary to our predictions something happens here to move the market deeper into bear territory. Probably some news event acted as a trigger to make the market do something unpredictable (the French reject the EU Constitution in this case). Hopefully, one was trading with defenses. Using stops, you can either sell again as MACD starts decreasing more, or stay out until the new low and buy when MACD reverses and crosses over one more time.
7. By mid-June bears are done selling the Euro and we see the MACD-Line histogram reverse. One has time to act on it and Buy. The market seems frazzled after the unexpected movements seen in (6). The buy is confirmed when MACD line heads towards zero and then there is a centerline crossover.
8. Either at the first (end of July) or second peak (mid August) - a trader should sell. The first peak might have been caused by another event that triggered a market hiccup. Can you find out what? Check our Forex Capsule for clues. (Here’s a hint: Starts with China, ends with revaluation).

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