MACD Gold Whipsaws & Fake Out Signals on Bearish & Bullish Territory
Since the MACD indicator is a leading indicator which sometimes gives whipsaws, we shall look at an example of a trading whipsaw generated by this MACD indicator, so as to illustrate why it's always good to wait for a confirmation trading signal.
MACD Indicator Whipsaw - Gold Whipsaws
The MACD indicator gave a buy signal, when this buy signal was generated and the MACD indicator line was still below the zero center line mark. At this point the buy signal had not been confirmed and it resulted into a trading whipsaw as illustrated by the moving averages which continued to move downward.
A gold trading whipsaw signal is as a result of dramatic rise and fall in the price in a short time and in such a manner that skews the data used in calculating the moving averages that draw the MACD indicator data. These types of whipsaw moves are usually brought about because of some news event that can produce market noise.
Traders should have the ability to gauge a trading whipsaw and withstand the whipsaw; a trading whipsaw might result into an upswing session and then a downswing session. To minimize the risk of trading whipsaws, it's good to wait for confirmation of signals by waiting for MACD to cross above or below the zero center-line mark.
Combining MACD Crossover with Center-Line Crossover to Prevent Whipsaws
Buy trading signal - When there is a cross over, followed by a steep rise in price and then a center-line crossover the buy signal is confirmed.
Sell trading signal - When there is a cross over, followed by a steep decline in price and then a center-line crossover the sell signal is confirmed.
1. Buy Signal in Bearish Territory Whipsaw
When a buy signal is generated in a bearish territory, it might result into a gold whip saw especially if it is not followed soon after by a MACD center-line crossover.
In the trading example shown & described below, MACD indicator gives a buy signal even though it is in bearish territory, the MACD indicator then turns downwards and starts moving down again resulting into a gold trading whipsaw. By waiting for center-line cross over it's possible to avoid the whipsaw.
However, in this case there was a brief center line crossing: this trading whipsaw would have been hard to trade using this MACD indicator alone, that is why it is good to combine the use of MACD indicator with another indicator. In the trading example illustrated and explained below MACD is combined with the moving average indicators analysis.
MACD Gold Whipsaw - Buy Signal in Bearish Territory
2. Sell Signal in Bullish Territory Whipsaw
When a sell signal is generated in a bullish territory, it might result into a gold whip saw especially if it is not followed soon by a MACD center-line crossover.
In the trading example shown & described below, the MACD indicator gives a sell signal even though it is in bullish territory, the MACD indicator then turns up and starts moving upwards again resulting into a trading whipsaw. By waiting for center-line crossover it is possible to avoid the trading whipsaw. In the trading example illustrated and explained below by combining this MACD indicator with the MA Crossover Strategy you would have avoided this whipsaw.
MACD Gold Whipsaw - Sell Signal in Bullish Territory
To avoid gold whipsaws completely when trading the market with this MACD Indicator it is best to use the Center-line Crossover Signal as the Official Buy or Sell Signal of the MACD Indicator.
