Introduction to foreign exchange trading: how to use MACD

MACD is an abbreviation for moving average convergence divergence. This tool is used to identify whether the new situation is going up or down. After all, the primary task of our operation is to make money.

From the MACD chart, you usually see three numbers:

① : the first number is used to calculate the moving average period number;

② : the second number is used in the slower moving average period;

③ : and the third number is used to calculate the average between fast and slow.

For example, if you see that the metric parameter of MACD is "12, 26, 9" (which is usually the default setting for most charts), you can explain it as follows:

① : 12 represents 12 fast moving average lines;

② 26 represent 26 slow moving average lines;

③ : 9 represents the nine average lines between the two. This is called a vertical histogram (the green line in the chart above).

When it comes to MACD line, there is a common misunderstanding. That is, these two lines are the prices of the moving average. In fact, they are the difference between the two moving averages.

Histogram easily depicts the difference between fast and slow moving averages. If you look at our original chart, you'll see that as two separate moving averages, the histogram changes more.

This is called a deviation, because the faster moving average is slowly moving away from the slower moving average.

The closer the moving average is to each other, the smaller the histogram becomes. This is called focus motion, because the faster moving average is getting closer to the slower moving average.

OK, so now you know what MACD is. So we'll tell you what MACD indicators can do for you.

How to operate with MACD

Because there are two different moving "speed" averages, the faster one is more likely to reflect price changes.

When a new trend occurs, the fast line will react immediately and eventually cross the slow line. When this "crossover" occurs, the fast line starts to move away from the slow line, which often indicates that a new trend has been formed.

Since the MACD indicator represents other moving averages, you can imagine that it lags behind the price. However, MACD is still one of the most popular tools for investors.

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