MACD forms true divergence to price

Following yesterday’s swoon in the Swissy, price then went into a sideways channel, whilst MACD on the 15 minute chart followed the classic routine of neutralizing back to the waterline. This is an important concept to master, as one look at the hourly chart, while that was going on, would have had you believe that MACD was diverging to price, which was not the case.

I knew better, and was fully prepared to take advantage of the ensuing drop in price, which was very much predictable. On the channel breakout, just after the London open, price fell the same distance as leg one, which precipitated the fall. This was a classic downtrend continuation pattern, as documented in our library by Rick Kraai. As this pattern unfolds, MACD forms true divergence to price, which is a precursor to a rise in price.

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-Peter R. Bain