Warning: Following my trades may be hazardous to your financial health. See Disclaimer.

Thursday, February 09, 2012

Ignore Negative Divergence When ADX Is High

My trading has been influenced by MACD for years.  It's great in sideway markets, but in a trending market it's a hazard.  Look at the AKAM 60 minute chart below:

You see a pronounced negative divergence as shown in magenta lines:  the price makes a new high while MACD makes a lower high.  A screaming sell?!  But look at DMI.   The ADX is a whopping 42.58, in other words, very strong trend!  Last night was the earnings report and the price is now up 15.30% in pre-market trading!!

When ADX is greater than 25, the oscillators should basically take the back seat!  Don't be fooled!

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