What it is
MACD plots the difference between two moving averages plus a signal line, so it reacts to changes in trend strength rather than price level.
How traders use it
- To confirm a developing trend
- To flag momentum loss before price breaks
- For crossover-based signals
Worked example
A swing trader waits for a MACD crossover in the direction of the higher timeframe trend before taking the pullback entry.
Limitations
- Lags by construction
- Produces many false crossovers in ranges
Common mistakes
- Trading every crossover
- Ignoring the dominant trend
Educational content only. TradeCaster does not provide financial advice and past results never imply future performance.