How to Use the MACD Indicator to Determine Price Strength and Direction
I’ve always been a strong advocate of the MACD indicator. It not only helps identify divergence warnings but also assists in trend analysis. Today, I’ll share some personal insights on how to use this indicator to assess current price strength and direction.
Price trends can be broadly categorized into two types: trending markets (unidirectional) and ranging markets (consolidation). The MACD indicator reflects these trends as well, and the two concepts complement each other.
To judge price strength using the MACD, the key is understanding the significance of the zero line (O axis):
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When the MACD lines (DIF and DEA) are above the zero line, it indicates bullish dominance;
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When they are below the zero line, it signals bearish control;
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If the lines frequently cross above and below the zero line, it suggests a balanced market, i.e., a ranging phase.
Bullish MACD Pattern: The lines remain mostly above the zero line, with occasional dips below it—but never sustained or significantly deviating.
Bearish MACD Pattern: The lines stay predominantly below the zero line, with occasional rises above it—but never prolonged or far from the zero line.
Ranging MACD Pattern: The lines oscillate around the zero line without a clear bias upward or downward.
Once you recognize these three patterns, how can they be applied to trading?
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Bullish MACD: Focus on long positions; avoid counter-trend shorting.
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Bearish MACD: Prioritize short positions; avoid bottom-fishing longs.
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Ranging MACD: For wide oscillations, adopt a buy-low-sell-high approach; for narrow ranges, stay观望 (wait-and-see).
Those who blindly follow strategies often fail quickly. Mastery requires repeated practice and reflection. Only a deep, intuitive understanding can turn MACD into your weapon—otherwise, it may become a tool for self-sabotage.
