How to Determine the Bullish Divergence from MACD

The Moving Average Convergence-Divergence (MACD) is getting more attention as a technical indicator to determine the potential reversals for the general market or an security.

If you want to know basics of the MACD, you can visit:

http://top5indicators.blogspot.com/2013/09/what-is-moving-average-convergence.html

 

There are two types of divergence for MACD, one is bullish divergence, and the other one is bearish divergence. This article is going to go over the bullish divergence of the MACD.

 

The bullish divergence is formed when an index or a security reaches a lower low, but the MACD records a higher high. This conflicting information tells us even the market or security is still in the downtrend, but the internal strength hidden in the MACD reveals the stabilization or bottoming process is going on. This indicator is able to predict a potential turn around, even a substantial rally.

The following chart shows the bullish divergence formed in March 2009 after the infamous financial crisis 2007-08. The market had moved up from the historical bottom since then.

 

 

Source: stockchart.com, compiled by blogger.

Thanks for your visiting and reading. Happy trading!