MACD Stocks Whipsaws and Fake Out Signals on Bearish and Bullish Territory

Since the MACD stocks indicator is a leading indicator which sometimes gives whipsaws, we shall look at an example of a stocks whipsaw generated by this MACD stocks indicator, so as to illustrate why it's always good to wait for a confirmation stocks signal.

MACD Indicator Stocks Whipsaw - Stocks Whipsaws

The MACD indicator gave a buy signal, when this buy signal was generated and the MACD indicator line was still below the zero center line mark. At this point the buy signal had not been confirmed and it resulted into a stocks whipsaw as illustrated by the moving averages which continued to move downwards.

A stocks whipsaw signal is as a result of dramatic rise and fall in the stocks price in a short time and in such a manner that skews the data used in calculating the moving averages that draw the MACD stocks indicator data. These types of whipsaw moves are usually brought about because of some news event that can produce market noise.

Traders should have the ability to gauge a stocks whipsaw and withstand the whipsaw; a stocks whipsaw might result into an upswing session and then a downswing session. To minimize the risk of trading stocks whipsaws, it's good to wait for confirmation of stocks signals by waiting for MACD to cross above or below the zero center-line mark.

Combining MACD Crossover with Center-Line Crossover to Prevent Stocks Whipsaws

Buy stocks signal - When there is a crossover, followed by a steep rise in stocks price and then a center-line crossover the buy signal is confirmed.

Sell stocks signal - When there is a crossover, followed by a steep decline in stocks price and then a center-line crossover the sell signal is confirmed.

• 1. Buy Stocks Signal in Bearish Territory Whipsaw

When a buy signal is generated in a bearish territory, it might result into a stocks whipsaw especially if it is not followed soon by a MACD center line crossover.

In the stocks example illustrated and explained below, MACD stocks indicator gives a buy signal even though it is in bearish territory, the MACD indicator then turns downwards and starts moving down again resulting into a stocks whipsaw. By waiting for center line crossover it is possible to avoid the whipsaw.

However, in this case there was a brief center line crossing; this stocks whipsaw would have been hard to trade using this MACD stocks indicator alone, that is why it is good to combine the use of MACD indicator with another stocks technical indicator. In the stocks example illustrated and explained below MACD is combined with the moving average stocks indicators technical analysis.

MACD Stocks Whipsaw - Buy Stocks Signal in Bearish Territory

• 2. Sell Stocks Signal in Bullish Territory Whipsaw

When a sell signal is generated in a bullish territory, it might result into a stocks whipsaw especially if it is not followed soon by a MACD center-line crossover.

In the stocks example illustrated and explained below, the MACD stocks indicator gives a sell signal even though it is in bullish territory, the MACD stocks indicator then turns up and starts moving upwards again resulting into a stocks whipsaw. By waiting for center-line crossover it is possible to avoid the stocks whipsaw. In the stocks example illustrated and explained below by combining this MACD indicator with the Moving Average Crossover Stocks Strategy you would have avoided this whipsaw.

MACD Stocks Whipsaw - Sell Stocks Signal in Bullish Territory

To avoid stocks whipsaws completely when trading the stocks market with this MACD Stocks Indicator it is best to use the Center-line Crossover Signal as the Official Buy or Sell Stocks Signal of The MACD Stocks Indicator.