Technical Analysis Indicator MACD part one
Most technical analysis indicators are lagging. Let show you how to use MACD properly and its Leading indicator values.
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Indicators: MACD Divergence
newdigital, 2014.01.28 07:59
What is the MACD Indicator? How do I use it? (based on dailyforex article)
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
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
“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.
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
Part two of the three part series on MACD
newdigital, 2013.08.01 09:16
MACD Oscillator Technical Analysis Fast Line and Signal Line
MACD is used in various ways to give technical analysis information.
The MACD is constructed using two exponential moving
averages and MACD indicator plots two lines. The two default exponential
moving averages used are 12 and 26. Then a smoothing factor of 9 is
also applied when drawing.
Summary of how MACD is plotted
MACD uses 2 EMAs + a smoothing factor (12, 26 Exponential Moving Averages and 9 smoothing periods)
MACD only plots two lines- the fast line and the signal line
The MACD indicator implements the MACD line as a continuous line while the signal line is implemented as a histogram.
The fast line and signal line is used to generate trading signals using the crossover method.
There is also the center-line which is also known as the zero mark and it is a neutral point between buyers and sellers.
Values above the center-mark are considered bullish while those below are bearish.
The MACD being an oscillator indicator, oscillates above and below this center line.
newdigital, 2013.08.01 16:52
MACD Indicator Fast Line and Center Line Crossover
MACD Center line crossovers generate Forex trading
signals using the MACD center line. The sentiment of the Forex market
can be confirmed using MACD crossovers. MACD crossover above the center
mark generates bullish Forex market sentiment while crossover below
the center line generates bearish market sentiment.
Using the EURUSD Forex chart in the example below,
when MACD fast line crossed below the zero line, the sell signal was
confirmed and the market sentiment changed to bearish.
Also in the example below when MACD fast line later
crosses above zero line a buy signal was generated and the market
sentiment changed to bullish.
Oscillation of the MACD indicator
The MACD Forex
indicator is an oscillation indicator that moves up and down around a
zero mark. The center-line is the neutral measurement, values above
zero will indicate bullish Forex market conditions while values below
indicate bearish forex market region.
The MACD is also used
to indicate overbought and oversold levels. When the MACD reaches
overextended levels, then a currency is overbought or oversold.
However, in a strong upward trending market prices will stay overbought
in this case its better to buy.
Overbought conditions occur above the zero line while oversold conditions occur way below the zero mark.
Technical Analysis Indicator MACD part three
The final wrap up in the three part series on MACD
newdigital, 2013.08.01 16:56
MACD Classic Bullish and Bearish Divergence
MACD Classic divergence is used as a possible sign for
a trend reversal. Classic divergence is used when looking for an area
where price could reverse and start going in the opposite direction.
For this reason classic divergence is used as a low risk entry method
and also as an accurate way of exit out of a trade.
1. It is a low risk method to sell
near the market top or buy near the market bottom, this makes the risk
on your trades are very small relative to the potential reward.
2. It is used to predict the optimum point at which to exit a Forex trade
There are two types:
Classic Bullish Divergence
Classic bullish divergence occurs when price is making lower lows (LL), but the oscillator is making higher lows (HL).
MACD Classic bullish divergence
Classic bullish divergence warns of a possible change
in the trend from down to up. This is because even though the price
went lower the volume of sellers that pushed the price lower was less
as illustrated by the MACD indicator. This indicates underlying
weakness of the downward trend.
Classic bearish divergence
Classic bearish divergence occurs when price is making a higher high (HH), but the oscillator is lower high (LH).
MACD Classic bearish divergence
Classic bearish divergence warns of a possible change
in the trend from up to down. This is because even though the price
went higher the volume of buyers that pushed the price higher was less
as illustrated by the MACD indicator. This indicates underlying
weakness of the upward trend.
newdigital, 2013.08.01 17:00
MACD Hidden Bullish and Bearish Divergence
MACD Hidden divergence is used as a possible sign for a trend continuation.
This setup occurs when price retraces to retest a previous high or low.
1. Hidden Bullish Divergence
2. Hidden Bearish Divergence
Hidden Bullish Divergence
Forms when price is making a higher low (HL), but the MACD oscillator is showing a lower low (LL).
Hidden bullish divergence occurs when there is a retracement in an uptrend.
MACD bullish divergence
This divergence confirms that a retracement move is complete. This divergence indicates underlying strength of an uptrend.
Hidden Bearish Divergence
Forms when price is making a lower high (LH), but the MACD oscillator is showing a higher high (HH).
Hidden bearish divergence occurs when there is a retracement in an uptrend.
MACD bearish divergence
This setup confirms that a retracement move is complete. This diverging indicates underlying strength of a downtrend.
NB: Hidden divergence is the best
divergence to trade because it gives a signal that is in the same
direction with the trend. It provides for the best possible entry and is
more accurate than the classic type of diverging.
thanks a lot, i will read all the articles ;)