MACD Stock Whipsaws and Fake Out Signals on Bearish and Bullish Territory

Since the MACD indicator is a leading indicator which sometimes gives whipsaws, we shall look at an example of a stock trading whipsaw generated by this MACD indicator, so as to illustrate why it's always good to wait for a confirmation stock trade signal.

MACD Stock Trading Indicator Whipsaw - Stock Trading Whipsaws

The MACD indicator gave a buy stock trading signal, when this buy stock signal was generated and the MACD indicator line was still below the zero center line mark. At this point the buy stock signal had not been confirmed and it resulted into a stock whipsaw as illustrated by the moving averages which continued to move downwards.

A stock trading whipsaw signal is as a result of dramatic rise and fall in the stocks 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 stock trading whipsaw and withstand the whipsaw; a stock trading whipsaw might result into an upswing session and then a downswing session. To minimize the risk of stock trading whipsaws, it's good to wait for confirmation of stock trading signals by waiting for MACD to cross above or below the zero center-line mark.

Combining MACD Crossover with Center-Line Crossover to Prevent Stocks Trading Whipsaws

Buy stock trading signal - When there is a crossover, followed by a steep rise in stocks price and then a center-line crossover the buy stock signal is confirmed.

Sell stock trading signal - When there is a crossover, followed by a steep decline in stocks price and then a center-line crossover the sell stock signal is confirmed.

• 1. Buy Stock Signal in Bearish Territory Whipsaw

When a buy stock signal is generated in a bearish territory, it might result into a stock trading whipsaw especially if it is not followed soon after by a MACD center line cross-over.

In the stocks trading example illustrated and explained below, MACD indicator gives a buy stock signal even though it is in bearish territory, the MACD indicator then turns downwards and starts moving down again resulting into a stock whipsaw. By waiting for center line cross over it is possible to avoid the whipsaw.

However, in this case there was a brief center-line crossing: this stock 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 stock indicator. In the stocks trading example illustrated and explained below MACD is combined with the moving average stock indicators technical analysis.

MACD Stock Whipsaw - Buy Stock Signal in Bearish Territory

• 2. Sell Stock Signal in Bullish Territory Whipsaw

When a sell stock signal is generated in a bullish territory, it might result into a stock trading whipsaw especially if it is not followed soon by a MACD center-line cross-over.

In the stocks trading example illustrated and explained below, the MACD indicator gives a sell stock signal even though it is in bullish territory, the MACD indicator then turns up and starts moving upwards again resulting into a stock trading whipsaw. By waiting for center-line crossover it is possible to avoid the stock trading whipsaw. In the stocks trading example illustrated and explained below by combining this MACD indicator with the Moving Average Crossover Stock Strategy you would have avoided this whipsaw.

MACD Stock Whipsaw - Sell Stock Signal in Bullish Territory

To avoid stock trading whipsaws completely when trading the stocks market with this MACD Stock Trading Indicator it is best to use the Center-line Crossover Signal as the Official Buy or Sell Stock Trading Signal of The MACD Indicator.