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Simplified MACD is very similar to the Basic MACD. The difference lays in the calculation, as in the simplified MACD instead of using some periods, we use a percentage.
Interpreting MACD Simplified
Similarly to MACD, it is possible to use this tool in 2 ways:
- Buying opportunities are present when the MACD cuts its signal line upwards.
- Selling opportunities are present when the MACD cuts its signal line downwards.
Divergence between the MACD histogram and the price of the underlying instrument indicates major reversal points and give strong buying or selling signals.
Bullish divergence is present when the price of the instrument records new lows while the MACD histogram fails to drop to fresh lows.
On the contrary, bearish divergence is present as the instrument makes new highs while the MACD histogram does not record new highs.
Bullish and bearish divergences have a stronger impact when they in overbought or oversold markets.