MACD is a trading indicator used in technical analysis of stock exchange prices. Understanding this indicator will help investors grasp market fluctuations. At the same time, it is possible to identify potential trading points that help bring high profits. If you are a new investor without much knowledge or a trader who wants to improve your skills. Please refer to the following article on Forex Trading to better understand what is MACD signal !
What is MACD signal that makes so many people interested?
What is MACD signal ? – MACD is an oscillator used to determine buying and selling points in good price areas based on the nature of market psychology. At the same time, this type of index is also called a moving average convergence divergence index. This is one of the technical indicators mainly used for trend trading.
The components that make up MACD diverge
What is MACD signal has been answered above. Below are the components that make up MACD, each component will have different characteristics.
- MACD line: This line plays a role in determining the price trend of the market. Its value is often calculated as the difference of two exponential moving averages EMA 12 and EMA 26.
- Signal line: The Signal signal line is the EMA 9 line of the MACD line. When these two lines combine together, they predict an upcoming trend reversal and investors should take advantage to make transactions more smooth.
- Histogram chart: This is a chart that shows divergence and convergence by determining the difference between MACD and the signal line.
- Zero Line: This type of line acts as a reference to help investors evaluate whether the market trend is strong or weak.
What is the meaning of the MACD indicator?
- MACD is an effective price trend forecasting index based on providing information about the momentum of trends in the market.
- Contains a Histogram chart that is a reference for changes in the momentum of various types of trends. If the columns are getting lower, it shows that the trend is weakening and a reversal is likely imminent, and vice versa.
- MACD can predict the long-term trend of the stock exchange particularly accurately. Should be combined with a weekly time frame to achieve the best results.
- For short-term traders, you should check the MACD on the weekly chart to see the main trend of the price to participate in shorter time frames. To ensure safety in trading, you should not trade against the trend.
- However, under market conditions, the trend has not been clearly defined. The MACD index will no longer be so effective, it will have many false crosses. So it’s easy for traders to lose confidence. At the stage where the trend is unclear, traders should prioritize capital preservation and should not participate.
Above is all the meaningful information what is MACD signal? In addition to the above opinions, this index will have many different meanings depending on each case.
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Learn how to calculate what is MACD signal?
What is MACD calculation? The answer is: MACD = EMA (12) – EMA (26)
In which: EMA (12) is the moving average value of 12 days. And EMA (26) is the moving average value of 26 days.
- If the 12-day moving average is greater than the 26-day moving average, MACD is positive.
- Conversely, if the 12-day moving average is less than the 26-day moving average, MACD is negative.
How to use What is MACD signal?
How to use what is MACD signal and how to use it effectively. Refer to the information below to know how to use it.
When MACD diverges and crosses the Zero line
- MACD diverges and crosses the Zero line, proving that the trend is up so you should consider buying
- MACD crosses below Zero showing that the trend is down, giving a sell signal
However, like other types of technical indicators. Using MACD in trading cannot avoid the influence of price delays. Therefore, to trade most effectively, investors should combine a number of other indicators. At the same time, you should use your thinking to find the best entry point.
When MACD diverges and crosses the Signal line
- When the MACD line crosses the Signal line and goes from bottom to above the Zero line, the trend will increase => signaling to buy.
- When the MACD line diverges, cuts down the Signal line and tends to go down to the Zero line, signaling a downtrend => You should sell immediately.
Histogram measures Signal distance and What is MACD signal?
The Histogram line measures the distance between the MACD divergence and the Signal line. Represented by columns located above or below the Zero line.
- When the Histogram changes from the negative (-) area to the positive (+) area, it usually signals an uptrend and should be bought.
- When the Histogram changes from positive (+) to negative (-), it often tends to decrease, signaling that you should sell.
In general, using the Histogram line is quite simple but also poses many risks. Because the histogram trend is easily disturbed by transitions from negative to positive areas and vice versa.
Instructions for using MACD in investment transactions
If you are a trader and do not know how to use the MACD index. Please refer to the article below for detailed usage instructions.
Only use MACD divergence
Trade when the MACD crosses the Signal line
The MACD line diverges and cuts below the Signal line. From this, it can be seen that the market is trending down. Therefore, investors should consider placing sell orders.
Conversely, when the MACD line crosses the Signal line. Signaling that the market is trending up, investors should consider placing buy orders.
Trade when the Histogram line changes from negative (-) to positive (+) and vice versa
When the Histogram changes from negative to positive value, this signals that the market is increasing -> Consider placing a buy order.
Conversely, when the Histogram index line changes from positive to negative. This shows that the market is decreasing -> Consider placing a sell order.
Trade when MACD changes from negative (-) to positive (+) and vice versa
- When MACD crosses the Zero line from below, this signals that the market is bullish. Therefore, investors can consider placing buy orders.
- When MACD crosses the Zero line from above, this signals that the market is falling. So investors can consider placing sell orders.
Trade when MACD diverges and the Signal line
- In an uptrend, if the next price peak is higher than the previous price peak but the next MACD peak is lower than the previous MACD peak -> Sign that the uptrend is weakening and the market may reverse -> Investors should consider Reminder to sell off
- In a downtrend, if the next price bottom is lower than the previous price bottom but the next MACD indicator peak is higher than the previous MACD peak -> Sign that the downtrend is weakening -> You can start buying.
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Use MACD in combination with other technical tools
Combine MACD with a reversal candlestick pattern
- During an uptrend, investors will begin to recognize signs that the market is in a downtrend based on the appearance of reversal candlestick patterns. Combined with MACD’s divergence signal, investors can believe that a trend reversal is about to take place. From there you can consider placing a sell order.
- Similarly, in a downtrend, you can consider placing a buy order to catch the bottom. When there is a divergence between the MACD index and the appearance of a reversal candlestick pattern.
MACD combined with RSI indicator
These two indicators, when combined, will give investors a comprehensive and complete view. When the signals of both sides are consistent, the price forecast will be more reliable.
MACD divergence combined with Stochastic indicator
- When the combined indicator of MACD and Stochastic is higher than level 10 -> Consider selling.
- When the combined indicator of MACD and Stochastic is lower at -10 -> Consider a reasonable buying point.
Conclude
The above article by Forex Trading is all information about the MACD divergence index and the knowledge surrounding this indicator. Hopefully, through the article, you can clearly understand the information what is MACD signal is and how to use the MACD indicator to achieve effectiveness. Besides referring to this type of indicator, you should learn some other indicators to know how to apply and combine them together!
Frequently asked questions
How many ways are there to view MACD divergence?
There are 2 ways to view the MACD indicator: on trading software or financial analysis websites.
Is the MACD index in forex safe?
Overall, MACD is a useful support tool for Forex trading. But it is not a perfect tool and does not guarantee profits.
Is there a fee for trading with the MACD index?
Using the MACD indicator for trading is usually free of charge. However, costs may arise depending on how you use MACD.
