Moving Average Convergence Divergence, acronym MACD and pronounced Mac Dee is one of the simple and most reliable technical tools in your trading arsenal as a currency trader. MACD is a trend following momentum oscillator or indicator and is used often by most of the traders.
MACD is a lagging indicators and it shows the relationship between two moving averages of recent prices. Most technical indicators are lagging. This means they are slow and they just tell you what just happened after the fact.
Technical analysis is based on the belief that all available information is immediately impounded into the prices and the past prices can be used to predict the future prices in the currency markets. Learning technical analysis is must for you if you want to succeed as a currency trader.
There are many chart types used in the technical analysis. Technical analysis helps you to read your charts and analyze them with a number of technical indicators. Using technical indicators is the key to understanding the market behavior.
MACD is calculated by subtracting a slow exponential moving average (EMA) from a fast exponential moving average. Signal line is calculated by the taking the EMA of MACD for a number of bars. The Histogram is the difference between the MACD and its signal line.
MACD is one of the most popular technical indicators in currency trading and is used often. However, beware that MACD is often misunderstood and misused resulting in wrong signals. Like any other technical indicator you should use it in conjunction with other technical indicators for confirmation.
In case of Crossovers, when MACD falls below the signal line, it is a bearish signal. It indicates the time to sell. Conversely, when MACD rises above the signal line, it is a bullish signal. It indicates that it may be time to buy.
In case of a Divergence, when the price diverges from MACD, it indicates the end of the current trend. Negative Divergence is when the price is rising and MACD is falling. It is an indication of the change in the trend. Thats right; the lagging indicator that is supposed to follow the price is predicting future behavior.
Dramatic Expansion: Dramatic expansion occurs when the shorter moving exponential average pulls away from the longer moving exponential average. Suppose MACD expands dramatically. It is an indication that the currency is overbought/ oversold and may return to normal soon.
You should make one thing very clear when you use a MACD. All the above three cases are important. They should not be overlooked by you as a currency trader. However, none of them alone are signals for entering or exiting a trade. MACD Divergence is tradable when confirmed by other indicators. If you simply start trading on MACD Divergence, it may not yield a profitable trade.
However, when you confirm MACD with other technical indicators, success is more likely. This is because of the fact that several things are happening in the currency markets at the same time. So you have to confirm your finding with other technical indicators. Each is attracting the same bulls and bears into the trade that you are planning to make.
MACD crossovers and dramatic rises are easy to spot. However, spotting MACD divergence takes a little practice. - 23210
MACD is a lagging indicators and it shows the relationship between two moving averages of recent prices. Most technical indicators are lagging. This means they are slow and they just tell you what just happened after the fact.
Technical analysis is based on the belief that all available information is immediately impounded into the prices and the past prices can be used to predict the future prices in the currency markets. Learning technical analysis is must for you if you want to succeed as a currency trader.
There are many chart types used in the technical analysis. Technical analysis helps you to read your charts and analyze them with a number of technical indicators. Using technical indicators is the key to understanding the market behavior.
MACD is calculated by subtracting a slow exponential moving average (EMA) from a fast exponential moving average. Signal line is calculated by the taking the EMA of MACD for a number of bars. The Histogram is the difference between the MACD and its signal line.
MACD is one of the most popular technical indicators in currency trading and is used often. However, beware that MACD is often misunderstood and misused resulting in wrong signals. Like any other technical indicator you should use it in conjunction with other technical indicators for confirmation.
In case of Crossovers, when MACD falls below the signal line, it is a bearish signal. It indicates the time to sell. Conversely, when MACD rises above the signal line, it is a bullish signal. It indicates that it may be time to buy.
In case of a Divergence, when the price diverges from MACD, it indicates the end of the current trend. Negative Divergence is when the price is rising and MACD is falling. It is an indication of the change in the trend. Thats right; the lagging indicator that is supposed to follow the price is predicting future behavior.
Dramatic Expansion: Dramatic expansion occurs when the shorter moving exponential average pulls away from the longer moving exponential average. Suppose MACD expands dramatically. It is an indication that the currency is overbought/ oversold and may return to normal soon.
You should make one thing very clear when you use a MACD. All the above three cases are important. They should not be overlooked by you as a currency trader. However, none of them alone are signals for entering or exiting a trade. MACD Divergence is tradable when confirmed by other indicators. If you simply start trading on MACD Divergence, it may not yield a profitable trade.
However, when you confirm MACD with other technical indicators, success is more likely. This is because of the fact that several things are happening in the currency markets at the same time. So you have to confirm your finding with other technical indicators. Each is attracting the same bulls and bears into the trade that you are planning to make.
MACD crossovers and dramatic rises are easy to spot. However, spotting MACD divergence takes a little practice. - 23210
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading and swing trading stocks and currencies. Learn Forex Nitty Gritty. Try Netpicks Forex Signal Service.
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