The buy signal happens is triggered when the MACD Line moves above its trigger line and a sell signal is triggered when the MACD line crosses below its trigger line.<\/p>\n
There is a ton of material available online about MACD but we would like to highlight an interesting use which is called the Hook-up pattern, a term coined by analyst at www.elliottwave.com. Before discussing the details, please be reminded that this pattern works well when the price is in a strong trending mode.<\/p>\n
When there is a strong trend in place, the chances are slim that you will get a secondary entry to participate or ride the trend. Typically, the MACD line would moving farther away from its Trigger line in a strong trending mode. It is in this context that the Hook-up pattern comes in handy to \u00a0participate in the trend.<\/p>\n
In a strong trend, when the price takes a breather in the form of a sideways or counter-trend pullback move, the MACD Line would dip closer to its trigger line and then resume its move in \u00a0the direction of the underlying trend. A trade decision may be taken when the MACD line resumes its move in\u00a0alignment\u00a0with the underlying trend. This is more easily identified when you plot the MACD in a histogram mode.<\/p>\n
If you plot the MACD indicator as a histogram, the height of the histogram would diminish during a counter-trend pull-back or correction and then turn up \/ down as the price \u00a0resumes its trend. A buy or sell decision may be considered when the height histogram is higher than its previous day.<\/p>\n
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