Welcome to Part Two of our three-part video series: How to Use the MACD Indicator.
Before we begin, if you have not yet watched the first video in the series, you can watch it by clicking here.
Now that everyone is caught up let’s get started.
Have you ever heard the term MACD divergence? Do you know what it means? Don’t worry, by the end of this video; you will have a clear understanding of what MACD divergence is and why you should be using it in your trading.
MACD divergence is when the price of an asset, such as a stock, forex pair, or futures contract makes a new high, but the MACD indicator makes a lower high.
When an asset, such as a stock, forex pair, or futures contract makes a new low, but the MACD indicator makes a higher low, it is also considered MACD divergence.
So why is MACD divergence so significant?
MACD divergence is not a signal by itself, but rather an alert for traders to a market condition. Identifying the market condition can help a trader find the proper strategy to take advantage of the trading opportunity. MACD divergence shows traders when the momentum is slowing down.
For example, if the EUR/USD is making new highs and a trader sees MACD divergence, this could be an early warning that the EUR/USD is likely to do something other than trade to new highs, shortly.
We will be finishing up with Part 3 very soon, so make sure to watch the video below, “How to Use the MACD Indicator – Part 2.”
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