Recently, I received an interesting question about technical analysis. How many people truly understand MACD divergence correctly?

Honestly, many traders have a big misconception. Divergence does not equal reversal. If you don’t understand this, even the most useful indicator can become useless.

Let’s start with the basics. When MACD divergence appears, it’s a sign that the momentum is waning. It suggests a higher likelihood of a correction. But whether it will reverse is a different matter. For example, looking at the 4-hour chart of BTC, you can see clear divergence, yet the price continues to rise afterward. It’s just a temporary energy depletion that quickly recovers. If you panic and take a counter-position here, you risk incurring losses.

That’s why you shouldn’t rely solely on the MACD indicator. The overall market trend, fundamentals, and other technical indicators are all crucial.

For instance, suppose BTC is in a range-bound market on the daily chart. When it hits the upper limit and MACD divergence appears, it might look like a sell signal. You could potentially profit by selling near 20,000 points. But if you combine wave theory, you’ll see that this position is part of wave B’s correction, and the real sell point might be at the start of wave C, below 20,000. Confirming with moving averages can also help identify more accurate entry points.

This is the key point. To properly utilize divergence signals, you need to integrate multiple analysis methods rather than relying on a single indicator. Combining wave theory, MACD, and moving averages allows you to aim for consistent profits.

Technical analysis is profound. When understood correctly, it makes market movements much clearer. Next, I plan to delve deeper into wave theory. I wish everyone successful trading.