Know the MACD Indicator !!!

MACD indicator (Moving Average Convergence / Divergence) is very popular and widely used by traders in the forex market. This technical indicator was made by Gerald Appal in 1979 and in a short time received remarks from various groups because it was considered simple and flexible.

Basically, MACD shows the direction of the trend and market momentum. In general, MACD is used as:

measuring the strength of the trend that is happening.
measuring market momentum, whether the conditions are overbought or oversold.
indicator whether bullish or bearish divergence is taking place. This function is quite popular because the results can be accurate if the signal occurs along with the overbought or oversold market momentum.
There are several display versions of MACD in the trading platform, but basically represent the same parameters. The appearance of the standard version of the Metatrader platform uses an area to declare MACD, but the line version is more popular because it is easy to observe.

MACD Main Components
MACD is the difference between the value of the Exponential Moving Average (EMA) period 12 and the period EMA 26. The value of this parameter is recommended and always used. This difference in value can be displayed in the form of a line or area as shown on the Metatrader platform (see image below). Besides the MACD line or area as the main component, to find the right buy or sell momentum, a signal line in the form of a Simple Moving Average is used in period 9. This signal line is made to soften the MACD.

 the MACD area widens when the distance between EMA-12 and EMA-26 widens. Note also, when the EMA-12 and EMA-26 lines are the same or intersect (cross), then the MACD value is exactly at the zero line. Thus, then:

  • If EMA-12 is greater than EMA-26, then the MACD value is positive and the MACD area is above zero. This indicates a strong uptrend.
  • When the EMA-12 line is below the EMA-26 line, the MACD value is negative and the MACD area is below the zero line. This indicates a downtrend.
  • The buy signal occurs when the MACD cuts the signal line from the bottom (number 2 in the image), which is when there is an oversold momentum.
  • Signals to sell occur when the MACD cuts the signal line from the top (numbers 1 and 3) or when there is overbought momentum.
  • An exit signal if the MACD cuts the signal line in the direction opposite to the entry. If the entry buys at point 2, then exit can be at point 3. Whereas if the entry is sold at point 1, then exit at point 2