Like any oscillator or indicator, the MACD has drawbacks and risks.
- One of the most significant risks is that a reversal signal can be a false indicator. For instance, the zero-cross image above has a point where the MACD crosses from below and back again in one trading session. If a trader entered a long position when the MACD crossed from below, they would be left with a losing stock if prices continued to fall.
- MACD does not function well in sideways markets. If prices generally move to the side when they stay within a range between support and resistance. MACD tends to drift toward the zero line because there is no up or down trend—where the moving average works best.
- Additionally, the MACD zero-cross is a lagging indicator because the price is generally above the previous low before the MACD crosses the line from below. This can cause you to enter a long position later than you might have been able to.