Intraday Double Top with MACD Indicator Negative Divergence

This example of an intraday Double Top with MACD indicator expands upon, and combines two recent pages I added: Trading an Intraday Double Top and Using the MACD Indicator

By combining the pattern recognition with a technical indicator, you will be adding a method of confirmation to potentially increasing your probability of producing profits in the trade.

The first thing you would do is to recognize the intraday double top that is forming. Since you know the beginning of the pullback from the second top is the ideal entry point to go short, using the MACD indicator is one method of confirmation that a pullback is possibly upcoming.

The MACD indicator is a momentum indicator, and as such will produce a lower high as a stock gets over extended to the upside, reaching new highs.

This negative momentum divergence is the confirmation that helps to imply a possible decline is upcoming and allows you to enter a short position with a higher probability of profitability.

Here is the chart from my previous Trading an Intraday Double Top page:

Intraday Double Top

Now here is a chart of the same security, only this time I added a standard setting MACD indicator (12,26,9) to the bottom of the chart:

Intraday Double Top

Notice that I have drawn solid red lines parallel to the two intraday double top formations as well as sloping downwards on the corresponding areas of the MACD indicator section.

This downward sloping action on the MACD indicator while the price action forms a double top is know as a Negative Divergence. This provides additional confirmation for our reasoning of entering into a short term "Short" position.

Note: Be careful when using the MACD indicator and seeing a divergence. This indicator works well in a sideways market, but is not as reliable in a trending market. For example: If there was a strong uptrend starting or continuing at either of the above double tops, the prices could very easily have thrusted higher even with the negative divergence.

This is just one example of using multiple methods of entry point signals combined for a higher probability trade. Always remember that indicators and patterns do not work all of the time and you should try out various ones to see which ones fit your personal trading style.

Here are more pages to help with various chart patterns:




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