The MACD is a convector two moving averages with different time periods, which are smoothed third signal moving average. It belongs to the type of oscillators, but if you look at the structure indicator, for a basis, two moving averages (which are trend indicators) and, on this basis, this indicator can be attributed to the type of trend. He also is one of the most popular indicators.
When using two moving averages on the chart with different time periods autonomously, very trader risk, as there is false alarms. The use of two moving averages as an indicator MACD reduce disadvantages that are inherent to the moving average.
There are two types of indicator MACD: MACD histogram and line MACD. Next we shall discuss the linear MACD, MACD histogram because of we said.
The indicator is calculated:
To get the exact value of the MACD indicator line, we need two formulas that are shown in the photo.
Formula number 1. EMAl and EMAs - the two moving averages of the price (P). EMAl, this exponential moving average with a long time period. EMAs, this exponential moving averages with a short period. On this basis, the value of MACD is the difference of two moving averages.
Formula number 2. If you look at the formula, the value of the signal line is: exponential moving average with a short period (EMAa), multiplied by the value of MACD (previous formula).
The accuracy of these calculations depends on the correct choice of periods of exponential moving averages. Here are the best periods for the moving average:
1. For EMAl (long exponential average) better define the period 26 (last month)
2. EMAs (short exponential average) with a period of 12 (week)
3. EMAa (short-period exponential moving average, which is used to smooth out the difference) with a period of 9
When calculating using the closing price, but other options are possible (the maximum price, the minimum, the opening price, etc.).
Description line MACD:
Indicator "line MACD» used to analyze the trend of the forex market. Components of the indicator: the histogram and line smoothing. When you configure the display can change the period of exponential moving averages, color and thickness.
Zero mark indicates equilibrium prices in the short and long run. If the indicator above zero, it indicates an upward trend in prices, and vice versa, if the readings below zero, it indicates a downward trend.
Alarms:
Warning sign is the appearance of the signal line of new lows or highs.
Use this indicator and to determine the strength and direction of the trend. If the indicators are above zero, it indicates an uptrend and crossing zero down means changing trends and generates a signal to sell. Pay attention to the movement and to the previous indicator. If the indicator is in the positive or the negative zone for over a long time (two months or more), then it crosses the zero point and comes back, it means correcting prices and to conclude orders that match the movement of the indicator.
As for the divergence, the MACD indicator can be considered unique. If there is a bullish divergence when a new high on the chart above the previous one, and a new high in the display below the previous, this is not a sell signal. Divergence indicates a weak uptrend and it soon spread, it soon spread, and not a reversal. After the divergence between the price chart and the indicator price for a long time can grow and provide new local maxima. It is recommended to wait for confirming signals of other indicators. The same should be done in cases with bearish divergence.
MACD indicator chart can be used figure charting. You can apply these figures: the wedge, double top and double bottom (no divergence with the chart), the shopping channel.
If the absence of a strong trend indicator MACD forms a new high or low, it indicates a weak short-term growth and short-term costs to sign the warrant.
Disadvantages MACD and tips about:
This indicator, like most others, gives a lot of false alarms in the graphs of small half. Therefore, I advise to use the MACD indicator line on the charts, a period which exceeds one day.
The same traders often observed that the indicator is late in forming trend signals.
In adjustment MACD also has a disadvantage: if you specify a shorter period it will give more false signals, and if you specify longer periods, it will be a lot of signals to pass. Universal settings almost does not exist, but the best option given above (calculation of the indicator).
When divergence chart and indicators, to use another indicator (it was already mentioned above), so independent of the indicator MACD is undesirable. A great option is to use the MACD and RSI , these two indicators will harmoniously complement each other.
MACD Line is one of the most popular indicators for traders around the world. And this is no accident, he has earned an excellent reputation due to its high accuracy in forecasting. Comfortable and functional indicator, which when used correctly can bring huge profits, and so it should be in service every trader.