You have learned before that when prices go through a longer period of trend and start to sideways, two situations can happen:
- The price may run in the direction of the previous trend (continuous breakthrough)
- The price may run in the opposite direction (reverse breakthrough)
Wouldn’t it be wonderful if there was a way to confirm the breakthrough?
In fact, there are many ways to tell us that the trend is nearing its end, or that the reversal breakout market is about to start.
The MACD indicator is one of the most widely used technical indicators for traders. It is easy to use, but it is very effective to help you observe price kinetic energy changes. When we judge the market breakthrough market, we need to judge the situation when the price lacks kinetic energy. .
The MACD indicator can be displayed in many ways, but displaying it in a histogram is the most interesting way to display it. The histogram actually shows the difference between the MACD fast and slow lines. When the kinetic energy column becomes longer, it means that the kinetic energy is increasing, when the kinetic energy column becomes shorter, it means that the kinetic energy is decreasing.
So, when we are recognizing price reversal, how should we use this indicator? The questions are well asked!
Remember, the appearance of divergence will send a more effective trading signal. When the divergence occurs, the price and kinetic energy indicators usually move in opposite directions. Given that MACD shows changes in price kinetic energy, then, when market trends open, kinetic energy is usually strengthened. However, if there is a situation where the MACD kinetic energy starts to decline even if the trend continues, you can launch that the kinetic energy is decreasing and the current trend may be coming to an end.
From the chart above, you can see that despite the further price increase, the MACD kinetic energy bar continues to shrink. This means that although prices continue to run in the previous trend, kinetic energy is starting to fade. From this information, we can conclude that the probability of a trend turning is very high.