Post of the Day: MACD Divergence

[B]Student’s Question:[/B]
But isnt trading divergence going against the trend? Some traders say that divergence occurs against the trend and it would be wiser to wait for an opportunity to trade with the trend after the divergence has dessipated. What do you advise?

[B]Power Course Instructor’s Response:[/B]
I can see how you arrived at that conclusion…

Ideally we would want to observe divergence signaling a trade in the direction of the trend on the Daily chart.

So, if the Daily trend is down for example, a good way to use divergence on the MACD would be on a 1 hour or a 4 hour chart where we can observe that upside momentum is fading while price action is making a higher high.

The conclusion then would be that momentum is fading and, as such, price action will be dropping…in the direction of the trend.