The MACD indicator is popular for its intuitive and informative nature.
However, even though the MACD indicator is powerful, many investors still fall into some common misunderstandings in practical application, which affect the accuracy of their investment decisions.
This article will demystify the three common mistakes that investors make when using the MACD indicator and provide corresponding strategy suggestions.
Misconception 1 of MACD indicator use: detached from the market trend structure
In the volatile sea of financial markets, there is one constant truth at the heart of price dynamics: the trend is king.
Whether it is a broad large-cycle wave or a delicate small-cycle ripple, the success or failure of each transaction depends on whether it can conform to the current trend.
Therefore, "following the trend" is not only the golden rule in trading, but also a guide to action that every investor must engrave in their hearts.
The following is the market dynamics of the recent 30-minute trading cycle of thread futures: using the analysis of the golden section and wave theory, the chart shows that when thread futures go through the correction phase, their wave structure has changed significantly, marking the reversal of the previous uptrend and turning downward.
During this period, the short-term recovery from low A to high B seems to be a counterattack by many market forces, but in fact it may be a market behavior that induces bulls to enter the market (i.e., induce longs).
It is worth noting that although the MACD indicator sent a buy (golden cross) signal during the same period, this technical indicator can be misleading in this scenario, suggesting that investors should not take bullish actions based on this signal to avoid falling into the trap of tempting bulls.
Misconception 2 of MACD indicator: the blind use of the golden cross death cross buy and sell signal
As a trend-following indicator, MACD is especially good at capturing the upward or downward trend in the market, and can often achieve more accurate trading results by prompting the buying time and the death cross indicating the selling point through the golden cross.
However, when the market is in a sideways or range-bound pattern, the MACD's buy and sell signals, i.e., golden crosses and death crosses, may lose their validity, leading to trading misjudgments.
Therefore, in the face of a volatile market, it is more appropriate to use indicators specifically for the volatile market, and the MACD signal should be reserved and operated with extra care.
In short, the MACD is highly consistent with the trend, but it is not suitable for a sideways market environment.
According to the daily chart of Tianshan shares, the stock price diverged from the bottom of the MACD after the decline, suggesting a bottoming rebound, and then the MACD golden cross drove the price to point B, and profit opportunities appeared.
In the stage of the turntable, the MACD signal frequently crosses the golden cross and the death fork (C-D point), which is an easy misjudgment area, and retail investors are often caught because they misread the signal to buy at point C and fail to sell at point D in time, revealing the reason behind the phenomenon of deep set.
Misconception 3 of using MACD indicator: Confusion is applied regardless of size period
Technical analysis points out that the longer the period of technical theories, methods and indicators, the stronger the stability; The shorter the cycle, the weaker the stability.
When applying the MACD indicator, you should choose the appropriate period according to your personal trading strategy, and familiarity with its correct usage is a prerequisite. When you are not proficient, it is recommended to use a larger period to improve the success rate of trading.
According to the soybean oil futures daily chart, the price penetrated the downward trend line, marking a trend reversal, while the MACD indicator showed a golden cross and then maintained a bullish posture.
In this context, a long strategy and hold until the MACD sends a death cross sell signal can achieve significant profits.
In other words, buying and holding a long soybean oil position in the signal range of the golden cross to the death cross will bring great returns.
As an important tool for technical analysis, the value of the MACD indicator is to help investors identify trend changes and market momentum, but its effective use needs to be based on a deep understanding of the market and avoid the common mistakes mentioned above.
Keep in mind that no single indicator can predict the market with complete accuracy, and the key is to combine various analytical tools to form a trading system that suits you.
On the road of investment, continuous learning, practice and reflection are the only ways to improve investment capabilities.
Well, that's all for today's content sharing! Happy learning! See you next time!