The MACD indicator is a generator of bullish and bearish signals used to predict the market movement.
The divergence of convergence of moving average (MACD) for its acronym in English (moving average convergence divergence,) is a technical analysis indicator used in the financial world by investors and traders. This indicator can be applied in virtually any market, including FOREX.
MACD is a momentum indicator that performs calculations, based on the difference between two different moving averages. At the same time another moving average is calculated from the result and acts as a signal. By using this indicator you can see the market move in a more clear and so minimize the possibility of loss, as it will allow you to see which currencies which do not negotiate and to get more profit. So you will be able to decide exactly when it's time to buy in real time. In short, the MACD is an indicator that shows the oscillator-type distance between an exponential moving average (EMA) fast and slow exponential moving average . Or what is the same, showing the convergence / divergence of two exponential moving averages.
Before going to fully explain how to use this indicator is important that you know that the MACD is represented as a histogram that is distributed over a central line the value 0 and a line called the signal line. In the configuration used, and that comes by default on all trading platforms, the fast EMA is 12 periods, slow periods of 26 and 9 times for the calculation of the signal line. The value of the histogram is the result the difference in the value of the fast EMA minus the value of the slow EMA, in other words, the value of the divergence of the two moving averages.
How MACD indicators work?
The MACD is composed of different indicators, moving averages , each of which is fairly simple. One is a line (also known as the water line or signal line). This shows the exponential moving average (EMA for short) from the closing prices in the last nine days of trading in the Forex market.
Two other EMA`s which let you see trends in each currency. This is the 26-day EMA and 12 days. These trends will help you know how the market has been unfolding in the long term and determine profitability. The Use of MACD: MACD line of the coin you are viewing may fall below or above its signal line the EMA. The position of this line with respect to the MACD line tells you whether the currency is moving up or down.
This signal is what you are used to determine in real time, whether it's time to buy or sell a currency. Learning to understand the movements showing the MACD indicator can increase your chance of making a profitable transaction. To use this indicator You should have access to the histogram for at least four-hour periods and / or one hour periods during the day so you can see clearly in what direction the market is moving. This can be used in different ways, the methods used in trade with the MACD are moving average.
• Crossing: occurs when the MACD crosses above (bottom to top) simple moving average for period 9, a bullish signal is generated.
• Crossing the center line : It occurs when the MACD crosses above (from top to bottom) the zero line (center line), a bullish signal. It also happens when on the contrary, the MACD crosses above (from top to bottom) the zero line, a bearish signal.
• Divergence: occurs when the MACD diverges from the market trend, it diverges from the trend when the MACD makes new highs while the price trend fails to reach those high spots and if there is a bullish signal. The aim of the histogram is to detect the difference between the two lines 12 and 26, when the histogram is above zero and begins to decline then we are in presence of a weakening uptrend or loss of time, in the opposite case when the histogram is below the zero line and it opens above this is a start shopping and downtrend weakening or loss of acceleration.
Also when the histogram is above the signal line and understand that it is an indication of the beginning of the upward movement as the histogram penetrates down the signal line, we are witnessing an oversold value. Remember, no investment is risk free and a MACD indicator will help with your trade more effectively when used in conjunction with other tools. It is important to note that the market is quite volatile and can therefore in a matter of minutes all suddenly change into a downward spiral, hence the importance of using MACD to get a better picture of the market.
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