Learn how to use MACD indicator to invest in the Forex Market

What is MACD?

The MACD indicator is a signal generator upside and downside that is used to predict the movement of the market.

The divergence of convergence of moving average (MACD) for its initials in English (Moving Average Convergence Divergence,) is an indicator used in technical analysis of the financial world for investors and traders. The MACD indicator can be applied in virtually any market, including FOREX.

MACD indicator is a momentum indicator that makes calculations based on difference between two different moving averages. Another moving average is calculated by the results and acts as a signal. By using this indicator you can see the market moving clearer and this minimize the possibility of loss, allowing you to see which currency you can have profit and negotiate. Therefore you will be able to decide exactly when the ideal moment to buy in real time is.

In short, the MACD oscillator is a type indicator that shows the distance between an exponential moving averages (EMA); fast and slow exponential moving averages. It shows the convergence/ divergence of two exponential average movements.

Before moving on to fully explain how to use this indicator it is important that you know that the MACD is represented as a histogram that is distributed over a central line in the value 0 and a line called “line signals”. In the configuration used, and by default on all platforms of trading, the fast EMA is 12 periods, the slow periods of 26 and 9 times for the calculation of the line signal.

The value of the histogram is the difference in the value of the fast EMA minus the value of the slow EMA, therefore, it is the value of the divergence of the two movement’s average.

How does the indicator MACD works in the Forex Market?

The MACD is composed of different moving averages indicators which is fairly simple. One is a line (also known as the water line or signal line). This shows the exponential moving average (EMA for short) from closing prices over the last nine days of trading on the currency market.

There is two other EMA `s that let you see the trends of each currency. This is the EMA of 26 days and 12 days. These trends will help you see how the market has been performing and determine profitability.

Use MACD indicator:

The MACD line of the coin you are viewing may fall below or above its signal line of the EMA. The position of this line with the MACD line tells whether the currency is moving up or down. What you will identify in real time is the signal, whether it’s time to buy or sell a currency.

Learning to understand the movement that shows the MACD indicator can increase your chances of making a profitable transaction.

To use this indicator you should have access to the histogram of periods for at least four hours and / or one-hour periods during the day so you can see a clear in which direction the market is moving.

The MACD can be used in different ways, the most common methods are:

•    Crossing moving average: Occurs when the MACD crosses up (from bottom to top) simple moving average for period 9, there is an upward signal.
•    Crossing the center line: It occurs when the MACD crosses up (bottom up) the zero line (line center), an upward signal. It also occurs when the MACD crosses up (bottom up) the zero line, a downward signal.
•    Divergence: Occurs when the MACD diverges from the trend of the market, this diverges from the trend when the MACD makes new high while the price trend fails to reach those high points and in that case there is an upward signal.

The goal of the histogram is to detect the difference between the two lines 12 and 26, when the histogram is above zero and it starts to decline then we are witnessing a weakening of the upward trend or loss of time, in the case when the histogram is below the zero line and opens above it we have the beginnings of a purchase and a downward trend of the weakening or loss of acceleration. When the histogram is above the signal line we must understand that it is a sign of the beginning of the upward movement and also when the histogram penetrates down the line signal, we are witnessing an over-selling value.

Always remember that no investment is risk-free and a MACD indicator will help you with your investments in the most effective way when it is used in conjunction with other tools.

It is important to note that the market is quite volatile and that for this reason it may in a matter of minutes everything changed suddenly in a downward spiral, so that is the importance of using the MACD to get a better picture of the market.

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