It is seen that many FX traders spend most of their time trying to figure out what is the best indicator to trade with. Reason being, trading would not be possible without the use of these technical market analysis tools. Their primary aim is to determine the right telltale sign which yells out the Buy or Sell as actual profits lie there itself. For those young Forex traders searching for the right technical tool, here’s a post which points out one which is quite predominant amongst traders, both young and old.
That indicator is Moving Average Convergence Divergence. Here’re some essential facts about this indicator. Refer to this post closely.
MACD – Moving Average Convergence Divergence
MACD primarily labels as a momentum and trend following technical indicator which renders information about Moving Averages. This is applicable for both a Bearish trend as well as a Bullish trend.
Using MACD chart, new traders will come across 3 figures – 12, 26, 9. 12 denotes the previous 12 bars of the faster Moving Average. 26 implies the preceding 12 bars of the slower Moving Average. 9 determines the number of bars which serve utility when gauging the MA between the faster and the slower MA.
When plotting it on the chart, traders will plot the difference between fast and slow moving average.
If fast moving average is diverging or getting away from the slower MA, it is known as Divergence.
On the other hand, if the faster MA is getting close to the slower moving average, it is known as convergence.
Trading With the MACD:
For young Forex traders wanting to become pros, there are 2 prime usages of MACD. Each of them consists of their own perks and cons but experts always suggest using them together to yield the best results.
Zero Line Crossovers
Zero Line Crossovers imply the 12 D MA which is moving across the 26d EMA. For a young forex trader, he/she should keep checking whether the MACD is surpassing the zero line from underneath. Reason being, it marks the emergence of a new uptrend. On the contrary, when MACD is crossing over the zero line from over, that implies the start of a new downtrend.
Buy –Trick is to buy when the MACD crosses the zero line from above.
Sell – Plus, one should sell when the MACD surpasses the zero line from below.
Single Line Crossover
Single Line Crossover presents proper timing, more accurate than zero line crossovers. Using this method, a young Forex trader will need to see when MACD line is crossing over its single line. This indicates buy signal. Contrarily, when MACD line is crossing the single line from below, it implies sell signal.
Practicing It with a Demo Trading Account:
For all young Forex traders, this is one cool and easy indicator to bring into their trading schematics. However, it will serve well, if one learns about this indicator in complete details. Most aspects are mentioned here, but there’s no harm in knowing its nature and workings inside out. Demo trading is one good way to gain enlightenment. So, find a broker who offers demo trading account (MT4/MT5 preferably) and start working with it now.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.