In the sea of stock markets, the MACD indicator acts as a guiding light, helping many investors to find their way forward.
But just as there is often fog at sea, the MACD signal can occasionally become blurry and even deliberately "mislead" us, which forms the so-called MACD crossover trap and double pronged trap.
MACD crossover traps
The MACD indicator runs periodically and causes the DIF line and the MACD line to cross, generating a buy and sell signal: DIF crosses the MACD above for a golden cross, buy; DIF crosses below MACD for a death cross, sell.
It is suitable for medium to long term, intuitive and easy to use, but there are frequent cross-traps, so you must be cautious when investing.
Golden Fork Trap
The golden cross trap of the MACD indicator refers to the fact that in technical analysis, when the DIF line (fast line) crosses the MACD line (slow line) from the bottom to the top to form a golden cross, it is usually regarded as a buy signal, indicating that the market trend may become stronger or the pullback is over.
Case Analysis: The stock price rose after the bottom consolidation, and then attacked after the resistance pullback, at this time, the MACD indicator turned from falling to rising, and the DIF golden cross MACD seemed to be a good opportunity to buy.
But then the stock price only briefly rose, hitting the previous high and was blocked, forming a double top pattern, and the golden cross signal was actually a bullish trap, causing follow-up investors to be trapped.
The solution: Observe the long-term trend and confirm the overall direction of the market.
The occurrence of a golden cross in a downtrend may only be a technical rally and should be more cautious.
Use long-term moving averages such as the 20-day and 60-day moving averages to confirm whether they have flattened or gone up to verify the validity of the golden cross.
Set a clear stop loss before each trade, and once the price moves in the opposite direction of expectations, immediately execute the stop loss to control the range of losses.
Death Fork Trap
In the process of technical analysis, when the DIF line crosses the MACD line from top to bottom to form a dead cross, it should theoretically be regarded as a sell signal, indicating that the market trend may weaken or the uptrend may end temporarily.
Case Analysis: After the main position was opened, the stock price rose, and after adjusting the shuffle, the MACD turned from negative to positive and golden cross, and then the death cross issued a sell signal.
However, the stock price did not fall sharply, and only briefly broke through the previous high after a short period of consolidation, and rose rapidly, proving that the MACD death fork is an illusion and a bearish trap.
The way to solve it: determine the general trend of the market, if the whole is in an uptrend, even the MACD death fork may only be a pullback, and it is not advisable to rush to sell.
Use long-term moving averages such as 50-day or 200-day moving averages to help determine trend direction.
Watch for reversal patterns such as double bottoms, head and shoulders bottoms, etc., near important support levels, where a dead cross can be a bear-trap.
MACD double pronged trap
The MACD reappears in the same direction in the short term after the first crossover, which is called the secondary signal, indicating the deepening of the market and providing a more reliable basis for judging the strength and weakness and making buying and selling decisions.
However, the market is volatile, and investors need to be cautious to avoid pitfalls.
Secondary Golden Fork Trap
MACD low first cash fork, after the stock price rose slightly, the second golden cross was formed within 1-2 months, close to the previous golden cross is the best, the daily K-line is W bottom, indicating that the trend is stronger, it is recommended to buy.
However, in the real operation, the stock price did not appear to rise as expected after the second golden cross signal, and the stock price quickly fell into the market or continued to fall, constituting a low-level secondary golden cross trap, which often made the W bottom pattern quickly transform into the M head pattern.
Case Study: The stock price fell after consolidating at a high level, and initially stabilized, with the MACD at the bottom of the golden cross, accompanied by the amplification of the volume, which seems to be a good opportunity to buy, and investors follow up.
However, the stock price did not rise as expected, revealing the illusion created by the golden cross as the main force.
The MACD second bottom golden cross, according to the classical theory to attract investors to buy, unexpectedly fell into the main bull trap again, the stock price continued to fall, investors were disappointed.
The solution: to ensure that the overall trend of the market is upward, even when the second golden cross appears, it is necessary to examine whether the general environment supports the further rise of the stock price.
Combined with long-term moving averages, such as the 200-day EMA, confirms that the uptrend has not been broken.
Instead of buying all at once, you can open positions in batches, so that even if you encounter a trap, you can reduce your risk and retain your financial flexibility.
Secondary Death Fork Trap
The MACD high first appeared a dead fork, the stock price fell slightly and rebounded to cause the signal to fail, and then the approximate position quickly reproduced the death fork, and the daily K-line became the M head, warning of the decay of rising momentum, indicating a downward trend, and it is recommended to sell.
However, in the real operation, the stock price did not fall as expected after the second death cross signal, which constituted a second death cross trap, and the stock price showed an upward trend, which often made the M head pattern quickly transform into a W bottom pattern.
Case Analysis: After the stock price fell back from a high of more than 10 yuan, it bottomed out and rebounded at 2.05 yuan, and then pulled back and continued to fall.
During the period, the MACD turned from negative to positive, and the first positive area of the death fork appeared, and more than a month later, the second death fork at the similar level, accompanied by the M head pattern, theoretically predicted a sharp fall.
However, the stock price was supported at the previous low, the counteroffensive increment, the MACD golden cross is now, the M head turned to the bottom of W, and the short-term strong rebound was 46.84%, breaking the conventional prediction.
The solution: clarify the overall trend of the market, even if the MACD has a second death fork, if the long-term uptrend does not change, it may only be a pullback rather than a reversal.
Analyzing the time interval between two death crosses, too short may mean that the market has not adjusted sufficiently, and too long will reduce the signal correlation.
The stock market is risky, and if you want to make money by buying stocks, you also have to face the risk of losing money. Learn to analyze comprehensively and keep a cool head, and you will be able to ride the wind and waves in the stock market and move forward steadily!
Well, that's all for today's content sharing! Happy learning! See you next time!