MACD line is one of the popular types of technical analysis tools commonly used in the Forex market. At the same time, MACD is also used to determine changes in price trends. If you want to know in detail What is moving average convergence divergence, please refer to the article below from Forex Trading!
What is the MACD line that any trader needs to understand?
What is moving average convergence divergence that makes so many people interested? To answer this question, please refer to the information below.
What is the MACD line?
MACD is a type of moving average convergence divergence used for technical analysis. Commonly used to determine the up and down trends of the Forex market.
This type of indicator will show how fast or slow the MA line divergence is as a basis for the trading process. The MACD indicator is a multi-purpose indicator that provides signals such as Overbought area, crossover area, oversold area, and changes in position relative to the number line.
What are the components that make up the MACD line?
The MACD line is composed of several components such as:
- Main line: This is the line that shows the difference between the short-term EMA and the long-term EMA. When this type of line crosses above the signal line, it will create a buy signal. When this type crosses below the signal line, it will create a sell signal.
- Signal line: This component usually has a short cycle, lasting only 9 days. This line appears signaling the trader to proceed with the transaction.
- Histogram: Histogram MACD shows an increase or decrease in the strength of a price trend. When you see this increase, it can signal an increase in price or a decrease in price depending on the color.
How to calculate the MACD line?
Many traders wonder calculate What is moving average convergence divergence. Then below is the answer to your question: MACD line = EMA 12 – EMA 26
In there:
EMA 12 and EMA 26 are exponential moving averages of 12 days and 26 days, respectively.
See more: MACD Trading Strategy: effective Forex trading x3 time
What does MACD mean?
Like other types of indicators, the MACD indicator also has some meanings such as:
- Used to identify trends: MACD can help identify the general trend of the market. When you see the moving average converging and diverging, it means the price trend is up. If the MACD line decreases, the trend may be down. This can help you decide whether to buy or sell your property.
- Provide buy and sell signals: This indicator is often used to generate buy and sell signals. When MACD crosses above the signal line it can create a sell signal.
- Detecting reversal signals: This line can help traders detect a reversal in the trend.
How to quickly identify the MACD line?
To quickly identify the MACD line, you can identify it in the following ways:
Identification through color:
- The MACD line is usually displayed in green above the signal line. This shows that the current price trend is likely to increase.
- The signal line is shown in red below the signal line. This occurrence shows that the current price trend is likely to decrease.
Identify through position and direction of movement:
- Position of the MACD line: Above the 0 line will show an uptrend. If it is below the 0 line, it will signal a downtrend.
- The direction of movement of the MACD line: The MACD line crosses above the signal line, showing an uptrend. If the line crosses below, it means the trend is down. Besides, when the MACD and the signal line move in opposite directions, it can signal a weakening of the current trend.
Identify through the use of the Histogram chart:
- High Histogram: Shows strong momentum of the current trend.
- Low Histogram: Signals weak momentum of the current trend.
- Histogram divergence: When the Histogram moves in opposite directions to the MACD line. This may indicate a weakening of the current trend.
Instructions for trading with the MACD indicator
What is moving average convergence divergence to use? This is a question that many traders wonder about. To trade with the MACD line, traders can do it in the following ways:
Trade the MACD line when it crosses the Signal line
When you see the MACD line cross the Signal line from top to bottom, it will show that the market is trending down. This is the signal to place a SELL order
In contrast to the above case, you should place a BUY order to earn profits for yourself.
Trade when MACD changes from negative to positive and vice versa
If you see the MACD line crossing the Zero line from the bottom up, it signals that the market is showing signs of teething. In this case, the trader should place a buy order.
On the contrary, if the MACD line crosses the Zero line from top to bottom, this is a sign of falling prices. This signal signals to the trader that he should place a Sell order.
Trade MACD when the Histogram changes from positive to negative and vice versa
To successfully trade when the Histogram changes from negative to positive and vice versa, you can rely on the following two cases:
Make transactions according to the change of color:
- Buy when the Histogram turns from red to green. This is a signal that the price trend may change from decreasing to increasing.
- Sell when the Histogram changes from green to red. This signal shows that the price trend may change from increasing to decreasing.
Trading according to the height of the Histogram:
- Buy when the Histogram increases, signaling that buying momentum is strengthening.
- Sell when the Histogram decreases, signaling that selling momentum is strengthening.
Take a trade when the MACD indicator creates a convergence divergence
Here is a popular trading strategy based on MACD convergence divergence:
Execute trading according to bullish divergence:
- Buy when MACD creates a new higher low while the price creates a new lower low. This is a signal that the downtrend may be about to end and the uptrend may begin.
- Place a stop loss order below the bottom at the nearest part.
- Take profits when prices rise or when the indicator MACD divergence begins to weaken.
Trading with bearish convergence divergence:
- Sell when MACD makes a new lower high while price makes a new higher high. This process is a signal that an uptrend may be coming to an end and a downtrend may begin.
- Place a stop loss order above the nearest high.
- Take profits when prices fall or when MACD begins to weaken.
What is the combination of a candlestick reversal pattern with the MACD line?
If you use this combination to conduct a transaction, you can rely on the following method:
When you see the graph appear, that’s it and the peaks are consecutive. This shows a long upward trend in the future. After the Doji candlestick pattern forms, the divergence will occur. At the peak, a reversal line will appear. When you see these signs occurring, you can determine that the buyer wants to push the price up but it is difficult because the seller has a position.
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Combine MACD with other indicators to execute trades
It is possible to combine MACD with RSI. These two indices will be combined to provide traders with an overall view of the market. It can be said that these two indicators will supplement each other’s information. Because RSI can predict price trends to know overbought and oversold points. The MACD line will help identify price trends and how to enter orders. In addition to combining with RSI, investors should also combine it with Stochastic, Moving averages, and Bollinger Bands…
Conclude
The above article has given you some information about What is moving average convergence divergence. How to recognize and guide transactions. Overall, it can be known that MACD is a powerful technical indicator that can be used to determine market trends. However, it is important to use the MACD indicator with caution. At the same time, it should be combined with other technical indicators and fundamental analysis to make wise investment decisions. So, if after reading the above article you have any questions. Please contact Forex Trading immediately to get the most detailed answers about this type of sugar!
FAQS
Should I consult an expert before making an investment decision based on MACD?
The answer is yes. You should consult a financial expert before making investment decisions based on MACD.
What types of indicators should the MACD line be combined with?
MACD should be combined with Stochastic, RSI, candlestick patterns…
Is MACD an accurate forecasting tool?
No, MACD is just a support tool, not an exact prediction tool.
