MACD Divergence is not all that complicated, granted you can take what something is showing you and plan to do the exact opposite.

Okay, so we have our MACD crosses sorted out. That is good, but we can drill down deeper into MACD and make it an even more powerful tool for our trading.

And what we want to take into account for is the MACD divergence. What MACD divergence is, is a line we can draw across the EMA's of the MACD and see if the lines are going up, or down.

With MACD one thing you can do is measure the momentum of a stock, or any other thing with a chart. When the price of something is increasing, yet the MACD is signaling that it is slowing down, eventually the stock or financial security of some variety is going to take a dive.

The following MACD Divergence settings in the images are set with standard 12, 26, 9 EMA's. Yellow line is showing what occurs.

Click to enlarge MACD Divergence image in its own window

This image is of GOOG, using TD Ameritrade's Thinkorswim platform for the chart.

As you can see, there is a yellow line across the MACD EMA's. This line is drawn downward across the EMA peaks. And if you look above at the actual share price, the share price continues to climb until the momentum is depleted and GOOG becomes exhausted, and dives.

Let's take a closer look at what is going on in this next image of the MACD divergence of GOOG.

Click to enlarge MACD Divergence image in its own window

This is a clear illustration of all parts that are playing out to foretell a turning of the tide in GOOG making a fall. Depending on the condition of a stock or financial security everything could be opposite in regards to the trend, lines, and so on. Be sure to remember that and keep an eye out.

As you can see in the image, the stock price of GOOG is climbing yet the MACD divergence is telling traders to beware that the stock cannot indefinitely continue northward.

When the EMA's are over top the MACD histogram and you can draw a downward line over the EMA's be prepared to witness the stock price to decrease. So, if you were looking to buy while the divergence is showing a decrease it would be best to stay out or look to place a short

Yet MACD divergence it remains a signal, an approximation of the future trend. And it is what it is, no more than an approximation.

There is no substitute for a good trading plan, and money management. If you can fit MACD into a system, you are not alone. But you need a plan.

I will tell you this, some of the most famous and heralded traders who use primarily price action alone will sometimes plot MACD onto their charts and completely bypass any MACD cross over and look at the divergence, because even while it is an approximation, it is a reliable approximation.

MACD with its flaws of being an unperfect, lagging indicator attempts to repair and heals its own short comings by providing you with a chance to eliminate some of its own erroneous cross over signals.

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