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