In the technical analysis of the financial market, the MACD divergence pattern is particularly important, it can predict the possible turn of the market trend in advance, and is a valuable clue for investors to formulate a trading strategy.
In this article, we will analyze the five divergence patterns of MACD in depth to help investors more accurately capture market trend reversals.
The first pattern: top divergence
When the stock price trend continues to climb in the K-line chart, forming a trend of one peak higher than one peak, at the same time, the height of the red column in the MACD indicator fails to follow, but shows a trend of one peak lower than one peak - that is, the peak of the latest trend exceeds the previous value, and the corresponding MACD peak fails to break through the previous height, this situation is called top divergence.
This is often a sign that the market is nearing the top and signals an imminent trend reversal, suggesting that prices may fall in the short term, and for investors, this is the time to consider selling.
The second pattern: bottom divergence
Bottom divergence mostly occurs during the consolidation phase of the market at a low level.
Specifically, although the price trend shown in the candlestick chart continues to bottom, and each new round of lows is deeper than the previous one, the trough of the green bar in the MACD indicator shows an increasing trend, that is, the latest trough is higher than the previous one, which is contrary to the downward trajectory of the price.
This divergence is seen as a leading signal that the market has bottomed out, indicating that the market is expected to reverse and rise in the short term, providing investors with short-term buying opportunities.
The third pattern: single yin divergence
When conducting a single negative divergence analysis, we focus on the appearance of a black candlestick in the daily candlestick chart, which should theoretically be accompanied by the growth of the green bar in the MACD indicator, indicating an increase in bearish momentum.
However, in some special cases, if the MACD histogram below this black line unexpectedly shows a red bar, which is a symbol of upward energy, the so-called single negative divergence is formed.
The fourth pattern: single-yang divergence
When examining the divergence situation through a white candlestick in the weekly candlestick chart, the conventional expectation is that the MACD indicator should show a red bar, symbolizing a match of the upward momentum.
However, in some special cases, if the MACD histogram does not grow but appears a green line below this white candlestick, it means that the downward momentum appears, which constitutes the phenomenon of single positive divergence.
The fifth form: divergence across the mountain
When we observe in the chart that a significant high point (peak) is located between the lower highs on both sides, this peak can be likened to a "mountain".
If the lower highs on the left and right sides are close to the same height, and the "halfway up the mountain" on both sides of the "mountain" are at a similar level, and the MACD indicator corresponding to the left high is displayed as a red line bar, while the corresponding time period on the right side has a green line bar, this special layout is defined as the phenomenon of "divergence across the mountain".
Only by mastering and flexibly using these five divergence patterns of MACD can investors gain insight into the subtle changes in the trend in the complex market fluctuations, accurately capture the turning point, and provide solid technical support for investment decisions.
However, technical analysis is only a tool, and the key to success lies in understanding the market logic and continuously learning and improving it in combination with practice.
Well, that's all for today's content sharing! Happy learning! See you next time!