7/30/2019 MACD Divergence Trading Transcript (22)

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MACD Chart Divergence Tactics Transcript

1. Title Slide

2. Good Day Traders this is Roger Scott from Market Geeks with another video

tutorial for you today. Before I begin I want to remind you to visitMarketgeeks.com for your free swing trading report and dont forget to subscribeto our video channel.

3. The last few days I focused on demonstrating the different parts of the MACDindicator so that you would become familiar with MACD and more importantlyless intimidated when analyzing MACD chart patterns. Most beginners havedifficulty learning the MACD because it's made up of several parts that interactwith one another. Once you understand how the MACD line is calculated andunderstand what each of the three parts of the indicator calculate the indicatorbecomes very simple to understand and moreover to utilize. If you are still havingtrouble identifying any of the three parts that make up the MACD, I suggestreviewing the last two articles. They can be found on the Market Geeks featuredarticle section of the website.

4. Today I will show you another way in which traders use the MACD indicator, themethod is called divergence. This is by far the easiest way to use the MACDindicator and one I suggest you start with. The concept of divergence is based onoverbought and oversold price levels. Divergence is basically a short termmomentum technique to determine when markets are running out of steamtemporarily. This method of analysis relies on visual analysis of the MACD line.

5. Divergence occurs when the MACD diverges from the price of the underlyingmarket. A bullish divergence forms when a market makes a lower low and theMACD Line forms a higher low. Since the MACD Line measures momentum,bullish divergence between the market and the MACD Line suggests that themarket may be moving higher despite of the fact that prices are moving downshort term. You can see a perfect MACD chart divergence example of this chartof Hyatt Hotel. Notice the stock begins a strong rally after diverging from theMACD substantially. Keep in mind that divergence analysis works best forreversal formations after markets have been trending for substantial amount oftime.

6. Bearish Divergence occurs when markets are making higher highs and MACDLine is making lower lows. This pattern is the exact opposite of BullishDivergence and works well after markets have been up trending strongly forextended periods of time. I do not suggest using divergence patterns in rangebound markets. The lack of strong momentum will not produce meaningfulresults when using the MACD indicator. Notice in this particular example howQQQ ETF diverges after a strong uptrend that lasted over 4 months. You alwayswant to see strong uptrend prior to using MACD for divergence.

7/30/2019 MACD Divergence Trading Transcript (22)

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7. Here's one more example so you can get a good idea of how the MACD Chartdivergence sets up. Remember, you don't have to pay attention to either theHistogram or the Signal Line when analyzing divergence. In this example AppleComputers appears to move higher but quickly heads south a few days after thebearish divergence signal. This set up works well with basic reversal patterns

such as double tops and double bottom patterns. I always use the MACD as aconfirmation indicator when trading these patterns.

8. In this final example you can see how Bank Of America Stock makes a lower lowwhile the MACD is strongly moving higher at the exact same time; notice itoccurs after a strong downtrend as well. The best MACD divergence patternsoccur after prolonged trends and momentum moving in one direction.

9. Divergence analysis is another way to utilize the MACD Indicator. Keep in mindthat Divergence only works after sustained trends are coming to an end andexhibited strong momentum in one direction. Also, MACD Divergence works well

as a confirmation indicator for other reversal patterns such as double tops anddouble bottoms. Avoid using the MACD Divergence when trading range boundpatterns and when markets are just beginning to trend because the MACD notwork well in those types of market environments.

10. Thanks for joining us for todays trading tutorial. Dont forget to visit MarketGeeks for your free swing trading report and subscribe to our video channel forupdates and trading tips. Wishing you the best in your trading.

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