[B]Student’s Comments:[/B]
As mentioned in the course material, the MACD is a lagging indicator.
In this example with the USDCAD on 2hr chart, perhaps the MACD’s big value comes in that it is diverging from price - signaling an end of momentum, and alerting the trader to a reversal.
This happens on two occasions on the chart. However, the actual cross over of MACD and the signal line might have been a bit too late in finding an optimal entry.
[B]Instructor’s Response:[/B]
Using the MACD, the divergence that you mention and the crossover after the Double Top occurs would certainly have been a signal that a trader could have taken.
On the basis of the Double Top formation [I]alone[/I], a trader could short the pair at the open of the candle after the Double top is confirmed…see the chart below.
Keep in mind that all indicators are lagging to a greater or lesser degree since they are based on price action that has already taken place.
It is fine to enter a trade after the initial move takes place. An “optimal” entry is not necessarily the one that gets you into the trade the soonest, but rather it is the one that provides the trader with a higher probability of success. Trying to rush into a trade as soon as possible can oftentimes lead to taking the trade based on false entry signals. Whereas the “lag”, can provide a certain level of confirmation since the move has shown that it is sustained.
