How to Confirm a Trend with MACD

MACD and moving averages have already been established as indicators that can do so.

At the cost of delayed input, these indicators will identify patterns once they have been formed.

On the plus side, there's less danger of making a mistake.

We've added the 10 EMA (blue), 20 EMA (red), and MACD to the GBP/USD daily chart above.

The 10 EMA crossed above the 20 EMA on October 15, signaling a bullish crossover.

Similarly, the MACD crossed to the upside and signaled a buy.

If you had taken a long trade at the time, you would have benefited from the subsequent uptrend.

Later on, the MACD and the moving averages both provided sell signals.

Taking such short trades would have resulted in massive profits, based on the steep downtrends that occurred.

Those cash signs are flashing in your head!

Let's take a look at another chart to understand how these crossing signs might rarely provide wrong indications.

We refer to them as “fakeouts.”

The MACD performed a bullish crossover on March 15, but the moving averages supplied no hint.

You just experienced a fakeout, friend, if you followed the MACD's buy signal.

Similarly, at the end of May, the MACD's purchase signal was not accompanied by any moving average crossing.

You might have put yourself up for a loss if you entered a long trade right then and there, because the price sank a little after that.