MACD Stock Indices Classic Bullish and Bearish Divergence

MACD Stock Indices Trading Classic divergence pattern is used as a possible sign for a trend reversal. MACD classic divergence is used when looking for an area where price could reverse and start going in the opposite stock trend direction. For this reason MACD classic divergence is used as a low risk entry method and also as an accurate way of exit out of a stock trade.

1. It is a low risk technique to sell near the stock market tops or buy near the stock market bottoms, this makes the risk on your stock trades are very small relative to the potential reward.

2. It is used to predict the optimum point at which to exit a Indices trade.

There are 2 different types of Stock Indices Trading Classic Divergence:

1. Stock Indices Classic Bullish Divergence
2. Stock Indices Classic Bearish Divergence

Stock Indices Classic Bullish Divergence in Stock Indices

Classic bullish divergence in stock indices occurs when price is making lower lows ( LL ), but oscillator is forming higher lows (HL).

MACD Stock Indices Classic Bullish Divergence in Stock Index - MACD Divergence Stock Indices Strategy Method

Classic bullish divergence in stock indices warns of a possible change in the stock trend from down to up. This is because even though the price went lower the volume of sellers who pushed the price lower was less as shown by the MACD indicator. This demonstrates underlying weakness of the downwards trend.

Classic bearish divergence in Stock Indices

Classic bearish divergence in stock indices occurs when price is making a higher high ( HH ), but oscillator is lower high (LH).

MACD Stock Indices Classic Bearish Divergence in Stock Index - MACD Divergence Stock Indices Strategy Method

Classic bearish divergence warns of a possible change in the stock market trend from up to down. This is because even though the price went higher the volume of buyers that pushed the price higher was less as shown by the MACD indicator. This demonstrates underlying weakness of the upward trend.