MACD Stock Index Trading Whipsaws and Fake Out Signals on Bearish & Bullish Territory
Since the MACD Stock Index indicator is a leading indicator which sometimes gives whipsaws, we shall look at an example of a whipsaw generated by this MACD Stock Index indicator, so that to illustrate why it's always good to wait for a confirmation Stock Indices trading signal.
MACD Trading Indicator Indices Trading Whipsaw - Stock Indices Trading Whipsaws
The MACD indicator gave a buy Stock Index trading signal, when this buy Stock Index trading signal was generated and the MACD indicator line was still below the zero center line mark. At this point the buy Stock Index signal had not been confirmed and it resulted into a whipsaw as illustrated by the moving averages which continued to move downwards.
A Stock Index whipsaw signal is as a result of dramatic rise and fall in the price in a short time and in such a manner that skews the data used in calculating the moving averages that plot the MACD Stock Index indicator data. These types of whipsaw moves are usually brought about because of some news event that can produce market noise.
Stock Index traders should have the ability to gauge a Stock Indices whipsaw & withstand the whipsaw; a Stock Indices trading whipsaw might result into an upswing session and then a downswing session. To minimize the risk of trading Stock Index whipsaws, it's good to wait for confirmation of Stock Index signals by waiting for MACD to cross above or below the zero center-line mark.
Combining MACD Crossover with Center-Line Crossover to Prevent Stock Index Whipsaws
Buy Stock Index signal - When there is a crossover, followed by a steep rise in price and then a center-line crossover the buy Stock Index signal is confirmed.
Sell Stock Indices signal - When there is a crossover, followed by a steep decline in price and then a center-line crossover the sell Stock Indices signal is confirmed.
1. Buy Signal in Bearish Territory Whipsaw
When a buy Stock Index signal is generated in a bearish territory, it might result into a whipsaw especially if it is not followed soon by a MACD center line crossover.
In the example below, MACD Stock Index indicator gives a buy Stock Index trading signal even though it is in bearish territory, MACD indicator then turns downwards and starts moving down again resulting into a Stock Index 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 Stock Indices whipsaw would have been hard to trade using this MACD Stock Index indicator alone, that's why it is good to combine the use of MACD indicator with another Indices technical indicator. In the example below MACD is combined with the moving average Stock Indices indicators technical analysis.
MACD Stock Index Whipsaw - Buy Signal in Bearish Territory
2. Sell Signal in Bullish Territory Whipsaw
When a sell Stock Indices trading signal is generated in a bullish territory, it might result into a whipsaw especially if it is not followed soon by a MACD center-line crossover.
In the example below, MACD Stock Index indicator gives a sell Stock Indices trading signal even though it is in bullish territory, MACD Stock Index indicator then turns up & starts moving upward again resulting into a Stock Indices whipsaw. By waiting for center-line crossover it is possible to avoid the Stock Indices whipsaw. In the example below by combining this MACD indicator with the Moving Average Crossover Strategy you would have avoided this whipsaw.
MACD Stock Index Whipsaw - Sell Signal in Bullish Territory
To avoid Stock Indices whipsaws completely when trading the Stock Indices market with this MACD Trading Indicator it is best to use the Center-line Crossover Signal as the Official Buy or Sell Signal of the MACD Indicator.
