Moving average convergence divergence (MACD) is considered an unreliable signal, but some technical traders insist that divergences of this indicator from price work. Access to the article requires a Premium Articles subscription or an All in One subscription.
A divergence of MACD from the price in the daily US dollar index chart was perceived as a bearish signal recently by some technical traders. Below is the relevant chart.
The US dollar chart shows a new relative high (dotted line), but the MACD chart shows a divergence, with the indicators lien (red) still below its recent highs. This was interpreted as a bearish signal.
Usually, in technical analysis, traders look at the divergence between price and the MACD histogram, which is equal to MACD minus the Signal. Nevertheless, we will look at both types mentioned, i.e., based on the MACD line and MACD histogram.
The backtests in this article are hypothetical since the US Dollar Index is not directly tradeable.
Case 1. Divergence Between Price and MACD Histogram
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Specific disclaimer: This report includes charts that may reference price target levels determined by technical and/or quantitative analysis. No updates to charts will be provided if market condition changes occur that affect the levels on the charts and/or any analysis based on them. All charts in this report are for informational purposes only. See the disclaimer for more information.
Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.
Charting and backtesting program: Amibroker. Data provider: Norgate Data
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