When the MACD crosses below the signal line, it is a bearish signal which indicates that the trend may have turned down. Conversely, when the MACD rises above the signal line, this is bullish suggesting that the trend and the price of the asset may be heading higher. Some traders watch for the MACD and/or signal line to cross above the central (zero) horizontal line and take this as a buy signal. If they cross below then it’s a sell signal.
The trouble with these methods is that there can be plenty of situations when such crossovers occur but that the market doesn’t follow the predicted change in trend. This is particularly the case when markets are range-bound or trading sideways. In such cases it is possible to get “whipsawed” – that is, buy when the MACD breaks above the signal line, or sell when it breaks below, only to get stopped out as the market subsequently snaps back. This is why it’s vitally important not to make trading decisions on the basis of the MACD alone. Instead, try to get confirmation of a trend change by using other indicators as well. The Directional Movement Indicator can help to establish if a market is trending or ranging. It can also be worth using moving averages with different timeframes (perhaps 20 and 50-day for example) and overlay these on the price chart.
CHART WITH SIMPLE CROSSOVERS