MACD Histogram And Prices Divergences

Divergences between MACD- Histogram and prices identify major turning points. These signals do not occur often, but when they do, they often let you catch major reversals and the beginning of a new trend.
In my opinion the MACD divergence is probably the strongest signal in Technical Analysis. You could probably make a living trading the divergences only! MACD should be a copycat of the price action, and therefore macd will also make a higher high same as a price action, if this pattern is not repeated then you have a divergence.
When prices rally to a new high, but MACD traces lower, this is a bearish divergence, this shows that the bulls are getting weaker, this would identify a price weakness at market tops. The following is an example of a Bearish Divergence.

Another example of a perfect MACD Bearish Divergence
A possible entry at 1.8670,
The EMA crossover at 1.8295 will still keep you in this trade; at this point the profit from the
trade was 375 pips.
You could consider closing the position at 1.7970 when the 20 EMA starts to rise, this giving a profit of 700 pips.
At this stage the 20 EMA has not crossed over the 60 EMA, so some of you may want to carry on with the trade. If you did so then you would have had a perfect opportunity to close the trade at the Double bottom on 7/10/04 at 1.7760 – giving a total of 910 pips profit.
Not a bad trade, from divergence.
If the prices fall to a new low but MACD traces a more shallow low, it would mean that bulls are ready to gain control, and this would identify strength at market bottoms. This is a Bullish divergence. They give buy signals when most traders feel fearful about a breakdown to a new low! The following chart illustrates a perfect MACD Bullish divergence on a EURUSD Chart
You could consider longs when the MACD Histogram ticks up from its shallower bottom; while prices are at a new low, place a protective stop below it’s latest low.
The higher the time frame of a chart in which the MACD divergence occurs, this may result in a arger move.
For example in the above chart, at around 1.2250 the peak of that rally had been 1.2850 –
thereby giving an overall gain of 600 pips. In this instance your entry points were much earlier
than the EMA 5/60 day crossover.
All the above strategies will work in any time frame, so unlike me, if you enjoy the thrills
and excitement of watching your screens for every second to catch 20 to 30 pips per trade, then you can certainly switch the charts to a lower time frame, i.e. 1 minutes or 5 minutes.

Below the link for download MACD Divergence indicator Metatrader 4

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