I am not a huge fan of indicators, as they all seem to lag behind price action. I also tend to keep things as simple as possible (K.I.S.S. – Keep it Simple, Stupid). Still, there is one indicator I really like – MACD. It is a great tool when used properly and in this post I’ll show you what I mean.

There are different ways to use MACD indicator. The most profitable for me is Negative Divergence. It forms when a stock/commodity/index advances or moves sideways, and the MACD declines. It is the first sing that the price is losing momentum and reversal is highly possible. The Negative Divergence in MACD can take the form of either a lower High or a straight decline. Negative Divergences are probably the least common of the three signals, but are usually the most reliable, and can warn of an impending peak. Usually used in combination with W-tops/bottom, rising/falling wedges. Most reliable when divergence occurs at some important support/resistance area.

Works in different time frames, though the longer the time frame, the more reliable is signal.

Examples:

NB! Avoid tops/bottom picking (using MACD divergence) on a strong trending day (significant up/down move without any meaningful retracement – see the last chart).

Profitable Trading!