Understanding and interpreting a MACD divergence can be very helpful in your trading. You may ask what does it mean. Just that the current price trend is running out of steam and soon may reverse direction. Price reversal may not happen right away. But it is a powerful hint that the market is changing direction.

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Most probably the traders are getting nervous and slowly fading out of their trades. MACD divergence is seen as a sign that fewer and fewer traders are in the trend. No one is trading against the trend and yet fewer and fewer traders are in the trend.

Suppose the price action is at the double tops or double bottoms. MACD divergence can be powerful. You spot it at this point. This is known as Exhaustion Pullback. You are making your trading plan based on the bounce/reversal or breakout of the support and resistance (S&R).

MACD is also used as an overbought/ oversold indicator. When you see that it has reached its overbought/ oversold range and the price action is turning normal, this is a signal that you should avoid trading at this time.

Divergence can not only be found on the MACD line and the signal line, it can also be found on the histogram. You should note this important point. The two situations described above along with your other technical indicators can provide excellent trading opportunities to you. Master MACD divergence!