When Does the MACD Indicator Not Work

Every disciple of technical analysis should know what the MACD indicator is. MACD stands for Moving Average Convergence Divergence. MACD takes the 9 day average and subtracts from it the 26 day average.

When MACD crosses the zero line on the upside, a buy signal is generated. When MACD crosses the zero line on the downside, a sell signal is generated. In trending markets, the MACD usually works wonderfully. It gives an indicator of when a trend has reversed. However, there are times when the MACD doesn’t work.

The MACD indicator doesn’t work when the market is trendless. The MACD tends to generate lots of unprofitable buy and sell signals when the markets are going sideways. But then again, only the day traders make money in a sideways market.

As you can see in this image to the left, lots of good buy and sell signals are generated in a volatile market. But when the market stops moving (early 1997), the buy and sell signals are pointless.