ecognizing the trend is unquestionably one of the first things you need to look for in your cart prior to starting analyzing when to enter a trade.
As we already determined, the indicators for such a purpose are MACD and moving averages.
These indicators will show you the trends, but bear in mind that they have delays.
However, such lagging indicators can give you the correct signals.
If we look at the GBP/USD’s daily chart above, you will see that we placed the 10 EMA (blue), 20 EMA (red), and the MACD.
Let’s analyse what signals these indicators show us.
The 10 EMA crossed above the 20 EMA around 15th of October.
This was a bullish crossover.
At the same time, MACD made an upward crossover, which means that it gave us a buy signal.
You decided to go long and made some good profits from the uptrend that followed.
A few days later on 20th of October, both the moving averages and MACD made downward crossover and gave us sell signals.
A strong downtrend followed, so it would have been a profitable trade if we did go short at this point.
Unfortunately, crossovers can sometimes give us false signals.
MACD made a bullish crossover around 15th of March, but the moving averages gave NO signal at all.
If you decided to buy because of the signal MACD gave you, you would suffer some losses.
This was a fake signal. You got tricked.
Later, the MACD’s gave a buy signal, which wasn’t confirmed by any moving average crossover.
The best thing you could have done was to NOT enter that long trade, because the price went down a while after that.
You should consider these lags and do not take quick decisions before you get a confirmation!