1. General Information
One of the most common technical indicators that is used by day traders
in the financial markets can be seen in the Moving Average Convergence
Divergence -- more commonly referred to as the MACD. But one mistake
that many new traders make is that they will simply start using this
indicator without really understanding how it functions or makes its
calculations. This can lead to costly mistakes that should have been
completely avoidable. So, it makes sense to study the logic and
calculations behind the MACD (and all other indicators) in order to more
accurately configure your day trading positions and generate gains on a
consistent basis.
The Moving Average Convergence Divergence (MACD) Defined
Anyone with any experience in the forex markets and in technical
analysis strategies has likely heard a great deal about the Moving
Average Convergence Divergence (MACD). But what exactly does the MACD
tell us -- and how is it calculated? Without an understanding of these
areas, it can be difficult to see trading signals as they emerge. Here,
will deconstruct the MACD indicator and explain how and why it is
commonly used.
“In its most basic form,” said Haris Constantinou, markets analyst, “the
MACD is a momentum indicator that is designed to follow existing trends
and find new ones.” The MACD does this by showing the differences and
relationships between a two-level combination of moving averages and
price activity itself.
MACD Calculations
To determine and calculate the MACD, we must subtract a 26 period
Exponential Moving Average (EMA) from a 12 period EMA. Then, a 9 period
EMA of the MACD is plotted, and this becomes the Signal Line for the
indicator. The Signal Line is plotted over the MACD and this will be
used as the trigger reading for trading signals (both buy signals and
sell signals). These elements form the basis of the MACD construction,
and it is important to have a strong understanding of these elements if
you plan on using the indicator in your daily trading.
Three Common Approaches to the MACD
Now that we understand the basics of how the MACD is calculated, it is a
good idea to look at some of the common ways that the MACD is viewed by
traders so that we can get a sense of how exactly the indicator is used
to identify trading opportunities. There are a few different ways the
indicator can be interpreted, and the three of the most common methods
proven to be the most effective for traders include
- Crossovers,
- Divergences,
- and in identifying Overbought / Oversold conditions
2. How to use MACD indicator - something to read
- MACD Strategy Center Line Crossover Bullish Signal and Bearish Signal
- MACD Oscillator Technical Analysis Fast Line and Signal Line
- MACD Technical Analysis Buy and Sell Signals
- MACD Whipsaws and Fake Out Signals on Bearish and Bullish Territory
- MACD Indicator Fast Line and Center Line Crossover
- MACD Classic Bullish and Bearish Divergence
- MACD Hidden Bullish and Bearish Divergence
- Scalping with MACD
3. Technical Analysis Indicator MACD part one
4. Technical Analysis Indicator MACD part two