MACD Divergence can be a helpful tool in tracking a reversal pattern. This last week MACD in the 1 Min. view helped to accurately predict change in trend. You can see in the GBPJPY attached chart that price is still making lower highs and yet MACD is making higher highs. The “Divergence” is seen here predicting the pending reversal.
Also, MACD was very helpful here in that the moving averages stayed below the histogram for the majority of the London session which is a clear indication that the trend is still bearish. I have highlighted the area below the histogram in red to indicate the bearish signal given by the moving averages being below the histogram. I have highlighted the bullish area above the histogram in green as the moving averages cross above the histogram and give the bullish signal. Price made a few bullish runs while the moving averages were still below the histogram and if you stay out of buying into these bullish moves while the moving averages are still below the histogram then you can avoid buying into a falling market and catch the actual bullish reversal once the moving averages cross above the histogram. See my post on Reversal Patterns to see the other criteria to enter after reversal patterns form.
Much appreciation to Wayne McDonell for introducing me to MACD and MACD Divergence. He spent a few months of his time mentoring me. His book The FX Bootcamp Guide to Strategic and Tactical Forex Trading is an invaluable resource and teaches these concepts.

– Tyler Lund

MACD DIVERGENCE

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