What is Moving Average Convergence Divergence (MACD)?
Moving Average Convergence Divergence (MACD) is one of the most reliable and useful tool in the arsenal of a currency trader. MACD is a trend following momentum indicator or oscillator.
MACD shows the relationship between two moving averages of recent prices. It is a lagging indicator. Most technical indicators are lagging which means they are slow. They just tell you what just happened after the fact.
Learning technical analysis is essential for you as a currency trader. Technical analysis is based on the premise that past price action can be used to predict the future prices in the currency markets.
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 EMA. Signal line is calculated by the taking the EMA of MACD. 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.
Crossovers: When MACD falls below the signal line from above, it is a bearish signal. It indicates the time to sell. Conversely, when MACD rises above the signal line from below, it is a bullish signal. It indicates that you should 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.
When MACD expands dramatically, this happens when the shorter moving average pulls away from the longer moving average. It is an indication that the currency is overbought/ oversold and may return to normal soon.
One thing should be very clear when you use a MACD. All the above three cases are important and should not be overlooked by you as a currency trader. However, none of them alone are signals for a trade. If you simply start trading on MACD Divergence, it may not yield a profitable trade. MACD Divergence is tradable when confirmed by other indicators.
However, when planned in advance and confirmed by other technical indicators, success is more likely. This is due to the fact that several things are happening at the same time. Each is attracting the same bulls and bears into the trade that you are planning.
When you use MACD, crossovers and dramatic rises are usually easy to spot. Even novices can do that. However, spotting MACD divergence correctly comes after a little practice. - 23196
MACD shows the relationship between two moving averages of recent prices. It is a lagging indicator. Most technical indicators are lagging which means they are slow. They just tell you what just happened after the fact.
Learning technical analysis is essential for you as a currency trader. Technical analysis is based on the premise that past price action can be used to predict the future prices in the currency markets.
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 EMA. Signal line is calculated by the taking the EMA of MACD. 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.
Crossovers: When MACD falls below the signal line from above, it is a bearish signal. It indicates the time to sell. Conversely, when MACD rises above the signal line from below, it is a bullish signal. It indicates that you should 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.
When MACD expands dramatically, this happens when the shorter moving average pulls away from the longer moving average. It is an indication that the currency is overbought/ oversold and may return to normal soon.
One thing should be very clear when you use a MACD. All the above three cases are important and should not be overlooked by you as a currency trader. However, none of them alone are signals for a trade. If you simply start trading on MACD Divergence, it may not yield a profitable trade. MACD Divergence is tradable when confirmed by other indicators.
However, when planned in advance and confirmed by other technical indicators, success is more likely. This is due to the fact that several things are happening at the same time. Each is attracting the same bulls and bears into the trade that you are planning.
When you use MACD, crossovers and dramatic rises are usually easy to spot. Even novices can do that. However, spotting MACD divergence correctly comes after a little practice. - 23196
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.
posted by X - Men @ 3:06 AM
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