MACD Convergence Divergence Line is a technical analysis indicator used by many investors. This indicator can help investors make early predictions about price reversals. Besides, it also helps traders find accurate entry points. So how does this indicator work? Let’s find out the answer with Forex Trading right now.
How to read the MACD Trading Strategy indicator in Forex
In foreign exchange investment, the term Moving Average Convergence Divergence is extremely familiar to investors. MACD reflects market fluctuations. Through these things, investors can come up with appropriate trading strategies.
What is the concept of the MACD indicator?
MACD ‘s full English name is Moving Average Convergence Divergence. It is understood as a converging and diverging moving average. This is one of the indicators that can accurately determine the value it creates through two main factors: convergence and divergence.
At the same time, the MACD index also clearly identifies the strengths, weaknesses, and trends of price fluctuations, whether up or down. Based on the data used for pricing, MACD is classified as a type of lagging indicator. Therefore, many investors rely on the Moving Average Convergence Divergence indicator when placing forex trading orders.
Instructions for reading the MACD indicator for investors
When investors know how to read this indicator, they will trade more effectively. First, investors need to understand the structure of the indicator. The MACD indicator includes 4 main components. These are the signal line, histogram, zero line, and MACD line.
The MACD line plays a role in determining price trends in the market. The signal line is the EMA exponential moving average. The chart reflects divergence and convergence from which investors can determine the difference between the lines. Finally, the zero line helps investors evaluate whether the trend is strong or weak. Depending on the movement of the EMA, investors will know their correlation.
See more: MACD Trading Strategy: effective Forex trading x3 time
How to use MACD when trading forex
MACD is considered a very difficult indicator to use. But if investors can clearly understand its nature and how it works, it will bring high investment efficiency. Specifically, traders can refer to how to use the MACD line according to the following strategies to get the best results.
Use the crossover point and crossover direction of MACD Trading Strategy
If the MACD line crosses the zero line, a crossover point will appear. This is a sign of an uptrend. If it shows signs of decreasing starting from the zero line, this is a signal for a downtrend.
In case the indicator crosses from below to above, this is a signal of an uptrend and vice versa. The farther the MACD line is from the zero line, the stronger the signal of this indicator will be. Determining the right time to place a buy or sell order is important and also the most difficult thing. Therefore, investors need to practice and experience to draw lessons for themselves.
Combine MACD with the RSI indicator
Both of these indicators are used to measure momentum in the market. To trade the combination of these two indicators, first, use the RSI indicator. The purpose is to monitor when the market is oversold. Then, if the RSI surpasses the 30% level. This shows that the price may turn sharply.
Then wait to see if the MACD line cuts the signal line or not. If the signal line crosses from below, the buy signal will be confirmed more strongly. When both indicators give the same signal, the signal can be more reliable and give the trader more confidence. At the same time, this strategy will also generate higher profits with a small stop loss.
Combine in-depth MACD with reversal candlestick patterns
The two MACD indicators and the candlestick reversal pattern combined are said to be the most effective method. In particular, investors can rely on the following factors to find a point to place an order. First, if the uptrend is prolonged, it will create a bottom with subsequent peaks that will continuously increase.
Second, divergence will take place after the Doji candlestick appears and forms. At the same time, there is the appearance of a reversal candlestick pattern at the top. When all of these phenomena occur at the same time, it proves that buyers are trying to push prices up. However, the position of the sellers is overwhelming compared to the buyers.
Instruct investors on how to install the MT4 platform
The concept of what is MACD was introduced above by Forex Trading. Next, let’s see how to install and use the indicator on the MT4 platform.
What should you keep in mind when using the MACD indicator?
Using any technical analysis indicator tool requires certain precautions. the first thing investors need to pay attention to is time. When using, investors need to carefully consider the chart axis from the long-term frame to the short-term frame. Investors can completely use a combination of both intraday and monthly frame trading.
The second thing to pay attention to is the noise signal along with the principle of probability. Usually, the cause of losses for investors is not paying attention to noisy signals. Therefore, noise signals are the cause of the indicator’s incorrect effectiveness.
See more: XTB: The most reputable and quality broker in the UK
In-depth instructions for downloading and installing MACD on MT4
Investors can download MT4 software on websites. After installing the MT4 platform, follow the steps below to install the indicator on your computer:
Step 1: After downloading MT4, access the platform, select Insert, and select Indicator, followed by selecting Oscillator and selecting MACD to add the indicator to the platform.
Step 2: Adjust the parameters to suit your needs. Besides, investors can also change the color as well as insert the bold bar in the Signal box.
Installing the MACD indicator to the MT4 platform has been completed. Investors can start using and placing trading orders immediately.
Conclude
Above is all the information and how to use the MACD indicator in the foreign exchange market. Compared to other types of indicators, the MACD indicator is sometimes more difficult to use and requires investors to have specialized knowledge. In addition to proficiently using various types of indicator tools, investors also need to hone their professional skills. Hopefully, the information Forex Trading mentioned above will be useful to investors. Don’t hesitate to apply the Moving Average Convergence Divergence indicator to your trading strategy right away!
FAQs
Can the MACD indicator be used in conjunction with other technical analysis tools?
Investors can completely combine the use with other technical analysis tools.
What is the concept of Zero Crossover in the MACD indicator?
This is a signal showing a crossover between the line along the horizontal line.
What should you keep in mind when trading foreign exchange?
Forex trading requires investors to have knowledge and experience. Otherwise, investors can sometimes lose money in this market.
