Despite the huge number of different Forex signal indicators, there are some that have invariably remained popular over the years. One such indicator is the MACD.
Trade when crossing movings with each other
Macd is based on the readings of two exponential movings – fast EMA and slow EMA. If these lines intersect with each other, this could be a signal of an impending trend change. Therefore, the first and most common type of trading on Macd is the conclusion of transactions at the moments of the intersection of lines with each other.
MACD divergence / convergence signals
Divergence is a situation when the readings of the indicator and the chart diverge from each other. That is, one of them indicates an increase in prices, and the other, on the contrary, indicates a decrease. In such cases, it is customary to focus on the readings of the indicator, since most often it is he who turns out to be right.
Divergence is a sign of a trend reversal or price retracement/retracement. Its main advantage is that it gives a leading signal, that is, it appears some time before the market actually changes direction.
MACD divergence/convergence signals
Divergence is a sign of a trend reversal or price correction/retracement. Its main advantage is that it gives a leading signal, that is, it appears some time before the market actually changes direction.
In addition to divergence, there is also convergence. This is the opposite picture on the chart, when the lines of the indicator and the chart, on the contrary, coincide with each other and give a similar signal. Convergence gives a signal opposite to the divergence signal.
Macd and Relative Strength Index trading strategy
This technique is based on signals from two classic indicators – the Macd histogram and the RSI (Relative Strength Index). Trades will be concluded at the moments of price reversal on the chart.
Advantages and disadvantages
The main advantage of the technical analysis tools under consideration is the ease of use, which is highly appreciated by novice traders.
In addition, there are pluses:
- visibility of trading signals;
- combining the properties of a trend and a flat indicator, which reduces the likelihood of trading against the market;
- predictive capabilities in determining further price movement;
- information about the strength of the market;
- wide range of settings.
The macd indicator MACD has its drawbacks:
- lag behind the price, inherent in most oscillators, which limits its use, for example, in scalping;
- the presence of false trading signals caused by the “redrawing” of the instrument, when the signals appear and disappear after a while.
