Written By Basilio Chen

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Recently there has been many writings, video’s and training about the MACD indicators.  Although most indicatoare overly hyped, the MACD is a good tool but any good tool is only useful is used within its limits.

One of the most effective uses of MACD is in determining last moves (move that are losing momentum).  This is reflected by a MACD that goes against the direction of the prices.  Prices moving up and MACD not following.

Here is a graph of a Divergence that does not work.

(1) Prices a new peak but MACD does not exceed its prior peak (Divergence).

(2) MACD continues to deteriorate

(3) Prices keep advancing

While is true that the MACD shows declining momentum, price movement here has a strong momentum.  You cannot assume that the MACD is signaling a correction in any given time.  This chart ws taken in minutes but there are similar situations with Daily charts and the time delay waiting for a correction could be months and even years.

No indicator can be taken at face value without knowing the recent history up to that point.

The fact is that this chart follows a severely Oversold condition and the counter rally bring momentum to the upside.

This story is not finishes as it is being typed however it would take a double top formation to stop it and that formation has to occur at a higher timeframe.