Forex Trading Basic

MACD Indicator Technical Analysis

MACD Indicator Technical Analysis

MACD Indicator Technical Analysis: You’ve probably heard numerous times from one indicator that most traders use in their daily operations: the MACD, or where they come from stands, the Moving Average Convergence Divergence. As its name suggests, it is a somewhat more complex indicator in its calculation, even when interpreting does not involve undue hardship.

MACD Indicator Technical Analysis

To know where appropriate, simply indicate that is based on the difference between two exponential moving averages, faster than the other (usually a 12 and a 26), and a third EMA period shorter (EMA) that first two (usually 9) commonly known as signal line. In short, visually no longer two lines with different movements.

MACD Indicator Technical Analysis

What indicates the MACD? Fundamentally it gives us information about the strength or weakness of the market at a specific time. If the MACD upwards exceeds the signal line, the market is gaining strength, while if it falls below it, could be a sign of weakness of the existing trend. In short, the MACD helps us to pursue or abandon market trends .

In addition to the MACD itself, normally this indicator is accompanied by a histogram (known as MACDh) that provides a visual measure of the distance between the MACD line and the signal line, and most importantly, tells us in a very clear and unmistakable who rules at all times on the market, whether upward (when the histogram bars are above zero, and usually green) or bearish (when the bars of the histograms are below zero, and normally red), and how “margin” do.

MACD

MACD: Moving Average Convergence Divergence (Divergence Moving Average Convergence)

The indicator MACD is an oscillator, so that usually shown in a separate graph price chart below it. The MACD consists of a histogram and two line graphs.

  • One of these lines is called line MACD , which is obtained from the difference between an exponential moving average long – term and an exponential moving average short – term, for example EMA (26) – EMA (12). (red line in the graph)
  • Another line is called “signal MACD” which is an exponential moving average line MACD , for example EMA (9) MACD.(blue line in the graph)
  • The histogram is obtained from the difference between line MACD and the signal MACD . You can see that when two lines cross (the difference is zero), the histogram is zero.

MACD Indicator Technical Analysis

Being composed of moving averages, the MACD is a trend indicator follower. As mentioned earlier, these indicators work best during a trend and not so well to changing trends.

The MACD has many interpretations. When we look at moving averages, we said that many traders Forex market construct a moving average short – term and other long – term to see when they cross. Similarly, when the MACD is zero, this means that the moving averages that compose cross, and it is expected that for a while follow the trend, ie if crosses below an expected MACD negative, It implies that prices will fall. If crosses above, this implies a MACD positive, which means that prices will rise. The same can be seen as follows: when the line MACD crosses the signal up, this is a buy signal, whereas if the line MACD crosses the signal down, it is a sell signal.

Another interpretation is that the higher the MACD (histogram), the stronger the trend. Although you should be careful and watch out because if this is very high, it can mean overbought, which will result in a price correction.

As with other indicators, you should choose the parameters of the MACD carefully and methodically, as performing a back testing for each currency cross. The parameters to be selected are:

1- Periods for fast moving average (Fast Period)
2- Periods for slow moving average (Slow Period)
3- Periods for the moving average of the signal (Trigger Period)

Some platforms also allow you to choose what type of mobile media use, can be exponential (EMA), simple (SMA), weighted (WMA), etc.

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Please note that: Successful Technical Analysis largely depends on the functionalities of the MT4 Platform provided by your broker. If you are new in forex trading, you might consider reading the article on what is the best trading platform, Introduction to MT4 Platform and MT4 Platform functions. We have used a fully functional MT4 platform provided by HYCM Broker. Read why their MT4 platform has better trading conditions from the HYCM Broker review.

READ MORE

Chapter 5

Technical Analysis in Forex Trading

Lesson 1Types of Technical Analysis Indicators
Lesson 2Forex Trading Trendline Analysis
Lesson 3Forex trading Chart Patterns
Lesson 3.2Double Tops and Double Bottoms
Lesson 3.3Head and Shoulders Pattern
Lesson 3.4Rectangle Chart Patterns
Lesson 3.5Triangle Chart Patterns
Lesson 4Japanese candlestick Trading Strategy
Lesson 4.2Japanese candlestick Trading Strategy Part 2
Lesson 5Support and Resistance Levels
Lesson 6Types of Technical Analysis Indicators
Lesson 6.2moving averages Technical Analysis
Lesson 6.3MACD Indicator Technical Analysis
Lesson 6.4RSI Indicator Technical Analysis
Lesson 6.5Stochastics Indicator Technical Analysis
Lesson 6.6Technical Analysis with Bollinger bands Indicator
Lesson 7Fibonacci Retracement Forex Strategy
Lesson 8Forex Trading Pivot Strategies

Go back to Main Page: Forex Trading for Beginners

About the author

Syed Nazim

Syed Nazim is the Marketing Manager of RedMaroon, a Digital Marketing Agency for Financial Institutions. He is also involved with Forexing24.com as a writer and financial Analyst. He is a brilliant marketing geek with vast experience in every sector of Digital Marketing. He likes sharing strategies, tactics and proven methods to help you build a business and live the life of your dreams.

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