Technical indicator MACD: how should you use it

Technical indicator MACD: how should you use it

Every trader has its own support elements, which he uses to analyze and determine the future value of a financial asset. For some, it may be a combination of various technical indicators, someone is identifying the levels of support and resistance, and someone is finding the wave formation and the combination of it with the Fibonacci levels. In fact, there are many tools and each trader is aware of them, and most importantly, has used them in a given time interval. Today, I will tell you about probably the most popular technical indicator MACD.

MACD or Moving Average Convergence/Divergence belongs to the group of trend following indicators and capable of displaying several trading signals simultaneously ( First of all, I want to determine, that this indicator perfectly combines with any trading strategy or algorithm and can only strengthen the process of analyzing and selecting assets for investment.

First, let’s examine, what internal mechanism is included in the calculation of the trading indicator.

The indicator consists of the two exponential averages: EMA [26] and EMA [12]. The indicator is implemented using histograms, and in some specifications one additional line is added, that shows the signals of this indicator. So, moving average with period 9 acts as a signal line and the histograms are implemented as the difference between two exponential averages.

Now,we can move on to the signals, which the indicatordisplays. So, I highlight four key signal that is used by most of fix api traders.

  1. Divergence / Convergence. This trading signal is the most popular among all players in the fix apiforex market. The signal appears, when there is a divergence or convergence between the value of the technical indicator and also the price of the asset. So, when the histogram is reduced, and the quotes are rising – this is a signal of the divergence presence, after which we should expect a downward correction. A similar situation occursin the opposite case – quotes are reduced, and the histograms are rising. In this case, we should expect a correction up.
  2. Overbought / oversold. When the histograms valuesmatch the quotes value and are at their local minima or maxima, we should expect a corrective movement. For example, when the value of the histogram reaches its peak, it is a signal, that the current trend may soon end.
  3. Signals from the MACD lines and Signal. If you use this indicator with the specification of the presence of two lines, it will be possible to obtain additional signals, when they will cross. So, if the MACD line crossed the Signal line bottom-up, it is necessary to expect growth of quotes and Vice versa.
  4. The crossing of the balance line by indicator. At the time a downward or upward trend, histogram of MACD indicator may show crossing of azero point. If the value of the histogram grows and crosses the bottom-up zero border, then it signals of the beginning of a new uptrend. If it is top-down, the it is the same signal, onlyfor the beginning of the downtrend.

As we can see, one indicator allows you to receive a variety of signals, which can be applied to your fix api trading. The indicator is perfect for both trend strategies and for those, who are trading on corrections of the main movement, because the structure of the MACD is based on the principle of search of reversal and, at the same time, it defines the start of a new trend. Also, given the fact, that this indicator is automatically built in the trading platform fix api MT4, every trader can test its effectiveness right now and on this basis make a decision on the application of this filter in their trading or if he should use already familiar techniques to analyze financial assets.



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