Daily MACD Divergence Tracking (HSI, Day1, 5th Sep 2016)

I wrote about using MACD to detect trend reversal in previous article (Read more here).  I am going to start the daily updates on Hang Seng Index MACD divergence tracking as the MACD divergence is trending now.  This is a great chance to test the accuracy of this technical indicator.

In previous article, the explanation for MACD formation was meant for long position.  The same principle is applicable for short position.  The following are the criteria for the MACD divergence formation for short position.

MACD divergence confirmation criteria (short position)

• Closing price at new high but both MACD line (green) and signal (red) do not make new high.
• There are three distinctive MACD histogram valleys and hills, as indicated in the chart as number 1, 2 and 3.  (3 is not formed yet)
• The MACD histogram for hill 3 must be smaller than hill 1.
• During the period transitioning from hill 1 to hill 3, both MACD and signal lines did not cross zero line.
• The trigger point is near the hill 3 where the MACD line cut below the signal line.  (Yet to happen)

One good thing about MACD divergence is the ability to monitor the trend before it happens.  Today is the first day of MACD divergence trending.  As long as the index price stays at this level, the chances of MACD divergence formation are very high.  However, if the index keeps moving higher, the divergence formation may be invalidated once the MACD line achieves new high.  We shall monitor the situation closely.  Figure 1 is the MACD chart while Figure 2 is the scenario analysis.

Figure 1

Figure 2

Disclaimer:  The above technical analysis does not imply any buy or sell recommendation.   The entry point, stop loss point, stop gain point and any other technical indication stated in the article are solely for experiment purpose.  The author disclaims all liabilities arising from any use of the information contained in this article.