Using MACD
The typical MACD analysis uses exponential moving averages. Like other momentum indicators, MACD works best in a trending market or one that is trading in a volatile trading range. In flat and quiet markets, MACD can produce unreliable results.
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MACD works best in a trending market or one that is trading in a volatile trading range. |
The first indication of a change in trend is divergence. This is when the market makes higher highs and the MACD makes lower highs. The converse is true for falling markets where price makes lower lows and MACD makes higher lows. Figure 36.7 shows one year of daily data for cocoa futures. The divergence during the summer of 1994 is clear and the market broke its uptrend line by autumn.
Figure 36.7. Cocoa ...
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