Forex macd explained

MACD is one of the most reliable indicators. How To Use Slower Settings Of MACD Indicator? There are so many professional Forex and stock traders who rely on MACD.

However, it is one of the best indicators. It can be used along with RSI to confirm the trade setups. Maybe you have heard this a lot, but it has to be reminded in this article too. On the other hand, when they succeed to take a good position, they get out too early with a small profit, because they are afraid of losing the profit the position has made. They do not have enough patience to hold a position until it hits the target. So they limit their profit because they have no patience to hold their positions longer.

Also in many cases that you want to follow a trend, MACD tells you that it is too late and the trend is exhausted and may reverse at any time. In this article, I am doing my best to cover all of these cases and help you use MACD in your trades in the best possible way. MACD stands for Moving Average Convergence Divergence. This indicator is developed by Gerald Appel who was a trader and market technical analyst. MACD is the difference of a 12 and a 26 exponential moving average.

MACD subtracts the period from the period and the result will be displayed in a single line which is the MACD main line. Typical MACD indicators, have one extra line, which is an exponential moving average of the main line. This moving average is set to 9 by default and it is called signal line.

Instead, it has MACD bars histogram. On other platforms, you can see both the MACD main line and MACD histogram. MACD histogram is the difference of MACD main line and the 9 exponential moving average:.

As you see, MACD is nothing but the combination of two moving averages. In spite of this, it is a very strong and reliable indicator because it eliminates the market noise.

If you are a trader, probably MACD formula will have no use for you. You will need it, if you are a programmer and want to use MACD in designing and developing an EA expert advisor or robot , or your custom indicator.

However, the formula helps you understand the indicator better.

Main Line — Signal Line. The MACD that comes with MetaTrader by default, has only one color with the histogram. If you like to have the same colored MACD we have on our charts below screenshots , please download and install it to your platform before we start explaining about MACD and the way we use it in technical analysis and forex trading.

This indicator works on MetaTrader 4 or MT4. The below chart shows how colored MACD looks like.

In the indicator you downloaded above, it is set to zero by default, but you can change it back to 9 if you like. The MACD bars histogram you see on the below chart, reflect the difference of the main and signal lines. On the price chart, you see the main and signal lines.

The red one is the main line and the green line is the signal line. As you see, wherever the distance of these two moving lines is bigger, the MACD bars will become longer too, and wherever these two lines cross, the length of the related MACD bar is zero follow the black arrows.

As you see, when there is an upward movement and pressure the market is bullish , MACD histograms go up and change to blue and when there is a downward pressure and movement the market is bearish , they go down and change the color to red. MACD bars form highs and lows. When we have an uptrend, they form higher lows and when we have a downtrend, they form lower highs and when the bars go under the zero level, they form lower lows:.

Of course, if you know about the Elliott Waves and also the cycles, you will not take any positions against the trend, even if MACD is not on the chart, but as knowing the cycles and Elliott Waves is very difficult, you can use MACD to stay away from going against the trend. Please look at the below reversal signal. A candlestick is formed completely out of the Bollinger Bands and then three Bearish candlesticks form that are all reversal signals.

But, the second sell signal the yellow zone , looks like a good short trade setup. So going against MACD is risky. Of course, the above signal formed by the candlesticks are not strong enough. That is why the price did not reverse and kept on going up. As novice traders are unable to distinguish the strong candlestick trade setups , having MACD can be a big help not to go against the trend based on the weak trade setups. MACD also indicates whether the market is overbought or oversold.

When it is overbought, it is riskier to go long and when it is oversold, it is riskier to go short. When the market is overbought, Bulls buyers can start collecting their profit they sell at any time, and so the price may go down, and when the market is oversold, Bears can start buying at any time, and so the price may go up. Of course, the candlesticks also tell you if the market is overbought or oversold, but MACD is also a big help. You are a trend trader.

You have an uptrend here below. You see some reversal signals, but you wait for a continuation signal to go long. A strong Bullish candlestick forms the last one on the below chart and at the same time the last MACD bar changes its color and shows an upward pressure. Of course it can go much higher, but we never know:.

This position goes up only for one more candlestick and then goes down and triggers your stop loss:. MACD trading is so common among the Forex traders. They just wait for a fresh MACD movement for a few bars and then they enter. MACD is really good for trend trading. MACD has to be used as a confirmation only. The main indicator is the price. If you use MACD as a confirmation for support and resistance breakout , it will be a big help.

Look at the below image. There is a trend line with valid and visible support line. You are waiting for the support breakout to go short.

It is above the zero level too. So you go short at the open of the next candlestick, set your stop loss above the high price of the last candlestick and your target will be the next support level. It goes down and hits the target very easily. Obviously, it is a new chance to take another short position, but look at the MACD and its difference with the previous position. With the previous position, MACD started going down while it was way above the zero level.

It means, you would go short while market has been overbought which is a good decision. In this position below , not only MACD is not above the zero level, but it has already started going up and making higher lows.

So the market is oversold and your sell signal is not fresh. MACD Divergence is one of the most famous and the strongest trading signals that MACD generates. MACD Divergence forms when the price goes up and makes higher highs and at the same time, MACD bars go down and make lower highs.

If you use the traditional MACD, then the same divergence can form with the main and signal line. The rule says, the price will finally follow the MACD direction and will go down. However, the problem is you never know when the price will start following the MACD direction. So, if you rush and take a short position right when you see the MACD Divergence, it may keep on going up for several more candlesticks.

MACD Divergence can be seen at the end of uptrends. What does it mean? It means if you are a trend trader, you should not go long when a MACD Divergence forms.

The market can collapse at any time. MACD Convergence is also a famous signal, but people trust the MACD Divergence more because when the market collapses and goes down, it goes faster and stronger. Fear is stronger than greed and when markets go down, fear is the dominant emotion. MACD Convergence forms when price goes down and forms lower highs or lower lows, but at the same time MACD bars go up and form higher highs or higher lows.

The rule says, the price will finally change the direction and will follow MACD. MACD Convergence can be seen at the end of downtrends. It means if you are a trend trader, you should not go short when you see that MACD Convergence is formed.

I have been in the markets for over 12 years, but still your detailed approach helps a lot in fine tuning my strategy from my experience macd is one of the best indicators. I came to an idea to study macd after a trader i knew from a big bank few years ago was making millions dollars a year using Elliott waves with macd.

Thanks Dr Chris the concept is broadly explained.

I have a question how possible is it to use the crossing of the main and signal line in determining the trend movement. Does it have any effect?

I notice the predominant upward presense of the Red line which is the main line in an upward trend? MACD is a slow and lagging indicator and so it is good for following the trends. Additionally the crossing of the main and signal line usually reflects the trend exhaustion and reversal. Open Your chart and click on add indicator.. As author, you may use with HikenAshi chart. Although MACD is lagging.. Can we set main line and signal line manually?? I mean without MACD only use the EMA?? Please Chris tell me values..

Here we are using the MACD histogram only. For the purpose you explained, you need to have the MACD both with the lines and histogram like what we have here: Please explain what is ment by it? In the above article, just under the first image, it is written: A bit unclear here. But that is also correct. It is like the uptrend definition which is when price forms higher lows. And downtrend is when price forms lower highs. I do trade auto demarktrend breakout, how can one trade breakout with low low or high high histogram after crossin zero.

I have downloaded the coloured MACD indicator linked with this article. However, I am unable to have it displayed on my MT4 platform. I tried the link.

MACD | Forex Indicators Guide

I downloaded the indicator and installed it on my platform and it works without any problems. I just added the installation instruction to the above article. Please scroll up and find it below the download link.

We are doing it on a daily basis: Looking at the last image below the MACD histogram the second arrow reads lower low while I reckon it should read higher low.

Am I right in thinking so? Thanks in advance Greetings, Ajax.

Stochastic Indicator | Forex Indicators Guide

I mean, are they the ones closer to the upper level? You can see the examples here: Is it when the bars start to become smaller and closer to the the upper line? Chris, I followed all you instructions. What did I do wrong? The only reason that you cannot see it there is that the file is not installed on the right folder. Hi Chris, the setting of the coloured MACD is 12,26, 2. I wanted to use the slower setting you advised us , which is 24,52,9.

How can I change that? Hi Chris, Once I added the indicator to my Chart in MT4 only I can see Histograms. How can I fine-tune it to be visible. That is what MT4 support by default. If you like to have the MACD lines, you have to install the traditional MACD. I want to make an EA robot with my frend. Please send me if possible the code of the color MACD with red and green line.

IndicatorBuffers 6 ; if! April 7, at 4: I use your MACD for all my forex trades as I find it very reliable when it comes to detecting divergences. My question though is, do you, perhaps, have a MACD version that sends alerts when a diversion is detected and confirmed on any timeframe?

In this situation the price is lower and macd is going up but its 3 months movement. Should we consider it as macd convergence? Leave a Reply Cancel reply:. Your email address will not be published. Notify me of followup comments via e-mail. You can also subscribe without commenting. Get Our New E-Books For Free. MACD and Its Power in Forex and Stock Trading [With Pictures] By: Enter Your Email Address and Check Your Inbox: LEARN A PROVEN BUSINESS PLAN.

February 8, at 6: July 2, at 7: July 2, at 1: August 3, at August 3, at 6: February 22, at August 15, at 3: August 15, at 8: September 10, at 6: September 10, at 8: October 13, at October 13, at 1: November 13, at 9: November 14, at 2: December 12, at 2: December 12, at 4: December 24, at 6: December 24, at 1: January 21, at 4: March 5, at March 5, at 2: March 5, at 6: March 21, at 4: April 9, at 8: April 9, at May 11, at 3: May 11, at 2: June 5, at 4: June 6, at June 7, at June 7, at 2: June 5, at 5: June 6, at 1: June 6, at 5: June 18, at 2: June 18, at 3: June 18, at 4: September 4, at 5: October 24, at 2: October 28, at 7: May 18, at 2: June 30, at 3: October 6, at 5: February 25, at February 26, at 7: February 26, at Leave a Reply Cancel reply: The Easiest Way to Get Rich Fast.

Learn How to Get a Job with Mississippi Department of Employment Security Candlesticks or Support and Resistance Levels? Making Excuses Is the Only Thing Some People Do How to Write a Business Proposal for the Business You Want to Start Recent Comments LuckScout on What Is Data Technology and How It Can Make You a Millionaire?

Joseph Kolade on What Is Data Technology and How It Can Make You a Millionaire?

How to Use MACD Indicator Strategy in Forex Explained - ForexBoat Trading Academy

LuckScout on What Is Data Technology and How It Can Make You a Millionaire? Abata Moses on What Is Data Technology and How It Can Make You a Millionaire? Success Business Blogging Trading Investment. Home LuckScout Mementos Contact About Archive Privacy Policy Terms. This Is More Important Than the Article You Are Reading:. Are You Enjoying Our Site? Our eBook Is Even More Important!