In the first part of this article we discussed how MACD was calculated and then began to discuss the various methods we can use to interpret this indicator. Continuing on from this and using the same charts we used in the first part of this article.

While this won’t always be the case, if it does we then have the option to use another interesting aspect to this indicator to help back up and confirm the buy or sell signal the indicator has generated.  To confirm the buy and sell signal from the MACD averages simply wait for both averages to cross through the zero line of the histogram. By doing this it will add further weight to the significance of the buy or sell signal and give you a second chance to open a position usually still in the early stages of the new emerging trend.

A close study of the chart of the Hang Seng shows both averages crossing through the zero line of the histogram not too long after each break of the trendline, allowing users of this method to identify major reversal points and to open positions still in the early stages of the new emerging trend. Also note how reliable this method has been in identifying the last three major moves on this index and how increasing the time to 13, 34 and 8 resulted in no false signals being generated from the indicator using this method.

Taking this concept now even further, it was previously established that as long as both of the MACD averages remain above or below the zero line of the histogram the overall up or down trend is strong and likely to continue.  During this trend the averages will often cross above and below each other, but as long as both averages are still holding above or below the zero line of the histogram the trend overall is still strong and likely to continue. It’s not until both the averages cross through the zero line of the histogram that indicator would suggest that the overall trend is over.