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MACD indicator

The MACD indicator is one of the most important technical analysis metrics, which represents the convergence and divergence of two exponential moving averages from the price: with a short and a long period.

Using the MACD Indicator

This indicator can be presented in the following graphic modifications:

  • linear;
  • column.

This tool is used to predict price changes in the Forex market (as well as on the stock exchange), it allows you to evaluate the strength of fluctuations, as well as the direction of the trend (increase or decrease).

On short time frames, it is not very applicable, since it gives a lot of extra signals. Usually, it is used on monthly, weekly and daily time intervals.

When using a line chart, an argument in favour of buying an asset is the situation when the moving average line crosses the line with a long one with a shorter period, from the bottom up. The reverse situation serves as a tip for selling: a chart with a short period that had previously been above the moving average line crosses it from top to bottom.

When using the MACD histogram, the key is to increase or decrease the histogram. An increase indicates that you need to conclude deals for an increase («bulls»), a drop – that you need to trade for a decrease («bears»).

It is very important to choose the right settings if the parameters are too small, the risk of false signals increases, and if they are excessively large, it will skip significant changes that should be paid attention to.