Triple Divergence Trading With MACD Histogram
Predicting trend reversals at the right time is what trading is all about. If you can learn the art of predicting the market turning points, you are on your way to make a fortune. Divergence patterns are considered to be important trend reversal patterns. But first what is a divergence pattern? A divergence pattern develops when the price action moves in one direction and the indicator moves in the opposite direction.
When divergence between the price action and the indicator develops, it means a potential trend reversal in the market. MACD is a very versatile technical indicator that can be used to trade these divergence patterns.
There can be two types of divergences, bullish or bearish. Bullish divergence means a downtrend is about to change into an uptrend. This pattern develops when the price action makes a new low while the indicator makes a new high meaning the price action is sloping down while the indicator in this case the MACD Histogram is sloping up.
When the prices are expected to rise, you can enter into a long trade just after the MACD ticks up from its last higher low and the price is at its new low with the stop loss placed at the most recent low in the prices. But sometimes prices continue to fall for sometimes. In such a case look for the Triple Bullish Divergence.
Triple Bullish Divergence is a very strong signal. A Triple Bullish Divergence happens when price action makes three consecutive lows while the MACD Histogram makes three higher lows. To trade this enter into a long trade when the MACD Histogram ticks up from its third and highest bottom while the price action is at its new low. Place the stop loss at the latest low in the price action.
Now, that was the bullish divergence patterns. In case of a bearish divergence pattern, price action makes a new high while the indicator in this case the MACD Histogram makes a lower high.
Enter into a short trade when the MACD Histogram ticks down after the second top and price is at a new high. Place the stop loss at the latest high in the price action. If you get stopped out, look for the Triple Bearish Divergence.
But sometimes, prices continue to rise. In this case look for the Triple Bearish Divergence that is formed when price action forms three peaks while the MACD Histogram forms three higher lows. When you spot a triple bearish divergence pattern, enter into a short trade on the first tick down on the MACD Histogram after the third higher bottom formed. You should place the stop loss at the most recent high formed on the price action.
When you combine candlestick patterns with these divergence patterns, you get pretty strong confirmation of the trading signals.
Article Source: FxTradingStock.com
About the Author
Mr. Ahmad Hassam has done Masters from Harvard University. Get these 3 Swing Trading Systems FREE. Master these highly profitable Candlestick Patterns with this FREE 82 page PDF Candlestick Guide.
by: Ahmad Hassam
Total views: 86
Word Count: 486
Date: Sun, 13 Feb 2011
Publish/Share this article
To use this article on your site click here to get the HTML code
Rating: Not yet rated
Login to vote
Related Articles
Tips On How To Profit In Virtual Stock TradingLet's Choose A Forex Broker.
Some Tips On How To Forex Trade Online To Know
Stay Away From Requotes In Forex.
Helpful tips for Finding the right Forex Trading Program
Forex Currency Trading Software program -- Pick the Proper 1!
Forex Trading Strategies - What To Do When You Loose
Currency exchange Robot Trading Systems - Get the Full Benefit!
