Explanation of the MACD Indicator (Moving Average Convergence Dirvegence)

In short, I use the MACD as a technical indicator to determine if an asset is overbought or oversold.

Traders use the MACD to try to interpret buy and sell signals from interpreting the movement of this indicator. As well as using the MACD to determine the strength of the trend.

MACD is called the convergence and divergence of two exponential moving averages (EMAs). MACD tries to capture short-term price movements relative to long-term average prices.

Convergence occurs when the moving averages are moving towards each other.

Divergence occurs when the moving averages are moving away from each other.

The fast moving average (EMA) is set at 12 days and is responsible for most of the MACD changes and the slower 26 day moving average (EMA) is less sensitive to price changes.

These two lines 12 and 26 will subtract from each other and we get the MACD line 9.

The MACD line is drawn around a horizontal line and fluctuates above and below it. Specify the line to be zero – above it is positive and below it is negative. When the MACD line is above the zero line, it means that there is no difference in the value of both EMAs.

The zero line is very important as it can show support and resistance areas.

MACD POSITIVE & MACD NEGATIVE


A positive MACD shows that the 12-day EMA is above the 26-day EMA.

As price momentum accelerates, the faster EMA moves away from the slower EMA thereby increasing the value of the MACD.

Opposite.

A negative MACD shows that the 12-day EMA is below the 26-day EMA.

And as price momentum slows down, the faster EMA will move away from the slower EMA, reducing the value of the MACD.

Another line showing on the indicator is the signal line, the signal line shows the 9-day EMA of the MACD.

The buy and sell signals generated by these two lines interact with each other. These two lines oscillate around the zero line (the right zero of the chart) to the right of the chart.

Strategy with MACD Indicator

The MACD indicator generates three basic types of signals
- Signal Line Crossovers (Cut the Signal Line)
- Zero Line Crossovers Signals (Zero Line Crosses)
- Divergence signal (Divergence)

Line cut signal Signal

- When the MACD line crosses below the Signal Line, it is considered a bearish signal, which indicates that it might be time to sell.

- When the MACD line crosses above the Signal Line, it is considered a bullish signal, which indicates that it is possible that this is a time for the price to move high.

Most traders wait for the MACD line to cross the Signal Line before entering to avoid catching a false breakout or entering an order too early.

Zero Line Crossover Signal


Zero Line Crossing signal occurs when the MACD line crosses the Zero line either up or down.

- The trend will increase when the MACD line crosses the Zero line in an upward direction and goes from negative to positive, which shows that bullish momentum will appear.

- The trend will be down when the MACD line crosses the Zero line in the downward direction and goes from positive to negative, which shows that bearish momentum will appear.

Divergence signal


Divergence occurs when MACD movements and price action differ.

- A bullish divergence occurs when the price drops to a lower low, but the MACD stops at a higher low.

- A bearish divergence occurs when the price rises to a higher high, but the MACD stops at a lower high.

The MACD divergence can alert attention to an imminent price reversal.

MACD HISTORY


The MACD histogram is a bar chart. It measures the height difference between the MACD line and the signal line. When the histogram is at zero line, it shows us that signal line and macd are equal, an up/down diagonal will occur.

EASY MACD TIPS

If you want MACD to be more sensitive then you should try setting 5,35.5 this might be more suitable for longer time frame charts.

Remember that every indicator is not always accurate. Many times when you need it most, it's wrong.