MACD Indicator Description
MACD indicator (Engl Moving Average Convergence / Divergence -. Convergence / divergence moving averages ) – technical indicator developed by Gerald Appel (. Engl Gerald Appel ), used in the technical analysis for assessing and predicting fluctuations in the stock price and currency exchanges.
In order to use the indicator, you need to read its full description and download it from the link at the bottom of the page.
How to start working with the MACDI indicator
It is used by traders when trading in the stock and foreign exchange markets and checks the strength and direction of the trend.
Also often used to determine pivot points. MACD has the structure of an oscillator, it can also be attributed to the class of complex averages, since it is essentially an improved version of two moving averages for visual perception.
Add indicator to MetaTrader 4
The MA CD indicator is included in the standard equipment of the fourth and fifth generation MetaTrader trading platforms. To add it to the chart of a trading instrument in MetaTrader open the menu “Insert / Indicators / Oscillators / MACD”
Parameters and settings of the MACD indicator
By default, the MACD indicator contains the most common configuration option among traders 12/26/9. Try to test them in the trade. In this case, of course, you can customize the indicator to your trading strategy as necessary. There are no limits. Give it a try!
How to build a trading strategy based on the MACD indicator
To work in the foreign exchange market with the MACD indicator, there are two ways to build and analyze it.
1. Option one – linear construction of the MACD indicator.
The MACD indicator is built on the basis of two lines – a solid, main line and a dashed, signal line, which is usually bright in color.
The main line is built on the basis of two average indicators of fluctuations in the exchange rate of a currency or securities. She is more mobile, quickly responds to price changes in a short period of time.
The signal line reacts much more slowly to price fluctuations, but covers a longer period of time.
The principle of operation in the market with a linear MACD indicator is based on the intersection of the main and signal lines. Moreover, if the signal line crosses the main line of the indicator from the bottom up – this is a buy signal. If the intersection goes, from top to bottom – a sell signal. It should be noted that when the main solid line is located above the signal line – this is an indicator of the presence of a bullish (growing) trend in the market, therefore, we open a position on “buy”. And vice versa, if the signal dashed line is above the main line – then a bearish (falling) trend prevails in the market, then we open a position on “sell”.
2. The second and more common use case for the MACD indicator is a histogram
Application of this option to use the indicator for trading on the stock or foreign exchange market allows you to see and conduct a deeper analysis of the current state of the market. The histogram is small columns that are either above the horizontal zero mark or below it.
Consider when the histogram columns are above the zero mark. In this case, if each subsequent column is higher than the previous one, this means that a bullish (growing) trend is strengthening its position in the market, which serves as a good signal to open a buy position. However, you should be careful as soon as the size of each subsequent column began to decrease compared to the previous one – a signal that the bulls lose their strength and it is likely that the trend will change.
If the columns of histograms of the macd indicator are located below the zero mark and each subsequent column is lower than the previous one, this indicates a bearish trend in the market and the possibility of opening a sell position. A possible change in the trend will be indicated by the fact when each subsequent column is higher than the previous one.
Examples of Simple Macdi-Based Strategies
We buy the instrument when the histogram columns begin to decrease below the zero mark, and then close above the moving average. Close the deal when the histogram columns cross the average in the opposite direction.
For a sale transaction, the reverse is true.
What is Divergence?
Divergence is a divergence in the direction of the indicator and the price chart, under which such conditions arise – a high maximum of the price is not confirmed by a higher maximum on the indicator – “divergence of bears”; Similar signals are inherent in all indicators of the oscillator family. As a rule, the occurrence of divergence / divergence means the completion of the movement in other words (a drop in trend strength), as well as a possible strong correction or reversal. The larger the time frame of the price chart, the stronger the signal.
Disadvantages of the MACDI indicator
- Unfortunately, the linear MACD and the histogram give a lot of false positives for hourly and lower timeframes, therefore the single is better to use on daily, weekly and monthly charts.
- The MACD linear indicator is sometimes significantly late in the formation of trend signals.
- The lower the value of the parameters in the MACD settings, the more false signals will get into it
- The greater the value, the more trading signals it “skips”
A few simple rules in conclusion
The use of a macd indicator, as well as any other indicator, can sometimes be accompanied by false signals. Therefore, for more successful trading in the stock and foreign exchange markets, it is best to use the MACD indicator in conjunction with other indices whose indicators will confirm the correctness of the selected position.
Follow Mani Management. Never in one transaction risk more than 2 percent of your capital. This approach will protect you from ruin and allow you to consistently make money on Forex using the indicator Moving Average Convergence / Divergence (MACD, Moving Average Convergence / Divergence).
Follow your trading strategy clearly. If according to the MACD strategy, Moving Average Convergence / Divergence, you need to open a deal – open, if you fix the result – fix it, and it does not matter if you are in the black. Only following the rules of the Convergence / Divergence of moving averages “from and to” indicator will allow you to earn.
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To conclude a framework agreement, the client is obliged to confirm that he is familiar with the following risks associated with the conclusion, execution and termination of obligations under the framework and individual agreements:
1. The risk of loss to an individual as a result of changes in foreign exchange rates (currency risk).
2. The risk of loss to an individual as a result of non-performance, untimely performance or incomplete performance by the Forex dealer and (or) the bank in which the Forex dealer account is opened, financial obligations to such an individual in accordance with the terms of the Agreement and Separate Agreements (credit risk )
|3. The risk of loss to an individual as a result of a violation of applicable law and (or) internal documents of a Forex dealer by employees of a Forex dealer, a malfunction (failure) of software and hardware of a Forex dealer and (or) individual, a mismatch of software and hardware of a forex dealer to the nature and volume of transactions it conducts, transactions by a third party on behalf of an individual as a result of receipt by such a person randomly or as a result of his||deliberate actions of unauthorized access to the possibility of making such transactions on behalf of an individual, carrying out operations by an individual that are not in accordance with his intentions, for reasons related to insufficient experience of working with this individual with software and hardware of a forex dealer and (or) making it random actions, as well as the result of external events (operational risk).|