Moving Average Convergence Divergence – MACD
If you are interested in trading Forex cryptocurrencies, the stock market, or anything in between, then one of the most important things that you need to know how to do is technical analysis. In trading, technical analysis indicators are considered to be some of the best tools in order to provide you with profitable buy and sell signals. When it comes to some of the most profitable and reliable indicators out there, the moving average convergence divergence or MACD indicator is hands down, one of the best.
When it comes to technical analysis indicators that MACD indicator is considered to be one of the very best. It provides you with a plethora of information that can tell you all about both the trend and momentum of the specific asset or security.
Now, if you have no idea what this MACD indicator is, how it works, what it provides you with or how to calculate it, then don’t worry because this is what we are here to teach you right now. Today we’re going to provide you with all of the information that you need to know about the MACD indicator to start using it to make profits. Let’s get through it and teach you how to use this awesome technical analysis indicator right now.
What is MACD?
OK, so of course the most important thing that you need to know here is that NACD stands for moving average convergence divergence. It may sound like an extremely complicated technical analysis indicator, and yes, it is quite the mouthful. But with that being said, The NACD indicator just measures the relationship of exponential move moving averages or EMAs.
Now, if you take a closer look at this indicator while it is attached to a chart, then you will see that it displays three different lines. It displays the MACD line, which is a blue line. It also displays a signal line, which is a red line. And it also displays a histogram, which is a green line. The main point of the MACD indicator is to illustrate the difference between the MACD line and the signal lines.
If we were to put this into technical terms, the MACD indicator tells you what the difference is between the two moving averages that have been exponentially level. And these are generally leveled at the 12 day and 26 day periods. The signal line usually takes on the form of a nine day. Exponentially smoothed average of the moving average convergence divergence line.
What is also important to know about the moving average convergence divergent indicator is that it does function like an oscillator because it provides you with both overbought and oversold signals. These are either below or above this zero line. Keep in mind that Ma CD lines usually waver around that same zero line.
What Info Does MACD Provide You With?
What is of course also important to know is what kind of information this moving average convergence divergence indicator provides you with. The most important takeaway of the day here is that the MACD indicator is it extremely versatile technical analysis tool. One of the reasons why this particular technical analysis indicator is so important is because it has the ability to measure two different things instead of just one.
What we also need to say here is that, generally speaking, there are four different kinds of indicators. There are momentum trend, volatility and volume indicators. For the most part, indicators usually only provide you with one of those four types of information, but the MACD indicator is a bit different in the sense that it actually provides you with information about two of those things.
The moving average convergence divergence indicator can provide you with information about the trend and the momentum of a specific asset or security. The fact that this particular indicator can provide you with information about both the trend and momentum of an asset is of course a pretty big deal. Take a look below for an exact explanation of exactly what this indicator tells you.
- When the MACD delete line crosses below the zero line, it means that the signals are in a downtrend and traders will usually take this as an indication to place sell trades.
- When the MACD line crosses above the zero line, it means that the signals are in an uptrend and trader will usually take this as an indication to place by trades.
Pros & Cons of Moving Average Convergence Divergence
Of course, just as is the case with any other technical analysis tool for trading out there, although the MACD indicator is indeed one of the best, it does indeed still have both advantages and disadvantages. Let’s take a look at exactly what is beneficial about this indicator and what is not.
- Of course, the biggest benefit that it comes with is that it is both a momentum and trend indicator.
- When using MACD crossover and divergence, the indicator can provide you with extremely clear and accurate sell and buy signals for trades.
- To help increase signal accuracy and trading accuracy even more, you can use this indicator along with other indicators and trading tools.
- What does need to be said here is that the MACD indicator doesn’t always provide 100% accurate analysis of trends. Trend following signals may sometimes fail, and sometimes these signals may also not move enough before a trend reversal occurs.
- It is also the case that on occasion this indicator can provide false signals, especially in terms of reversals. Sometimes sideways movements or a pause before the same trend continues may actually look like a reversal when it’s not actually a reversal.
How to Calculate Moving Average Convergence Divergence
- Calculate the 12 period EMA for the price at a chosen time.
- Calculate the 26 period EMA for the price at a chosen time,
- Subtract the 26 period EMA from the 12 period EMA.
- Based on the result obtained in step 3, calculate a 9 period EMA.
What’s the Best MACD Setting for Day Trading?
The best settings for day trading with the MACD, although it is usually set to 12, 16, and 9, if you use settings of 5, 13, and 1, you will see better results. If you are looking for great sensitivity, then go with 5, 35, and 5.
The MACD Indicator – Final Thoughts
At the end of the day, if you need a great indicator for trading, then you definitely want to learn more about the MACD indicator!
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