
While the Straites Times Index continues its uptrend, the MACD indicator shows decling momentum. MACD or Moving Average Convergence Divergence is a 'momentum indicator'. The MACD itself is plotted based on 2 moving averages. It can be used many ways but one of the way is to look for divergence.
What is divergence? When price makes a new high but the MACD makes a lower high, there is a divergence. This indicates that momentum is being lost and that a change in direction might be coming soon.
Professional traders can use this momentum to find profit taking points or even take a contrarian view. However divergence must be confirmed with a number of conditions. This is because many divergences can happen before price changes.