How to use MACD indicator on FXPro MT4 and MT5?

How are traders using MACD ?

MACD is an abbreviation for Moving Average Convergence Divergence. It falls into a trend-following type of analysis that plots asset price momentum through two moving averages. It is shown as the difference between the 26-day EMA (Exponential Moving Average) and the 12-day EMA. The plotted 9-day EMA is referred to as a signal line and, as the name implies, indicates when the signal can be held as a short position and a long position.

There are three main ways to analyze MACD. Dramatic rise, crossover, and divergence.

Dramatic rise

The dramatic uptrend pattern in the so-called MACD, where shorter MAs start moving from longer MAs (moving averages), usually points to buy-in assets. Most investors also use the RSI to confirm that prices are in the buying range and to avoid false signals.

Crossover

As the name implies, when the MACD intersects the signal line with the descending vector, the indicator emits a bearish signal towards the short position. If the direction of the MACD is reversed and crosses the signal line from below and rises, a blush signal is displayed. Investors usually act only when a persistent crossover is observed. This is because it could be an inversion or a false signal.

Divergence

If the price of your asset deviates from the MACD, it usually suggests a reversal of the current trend. In this scenario, the price is usually reversed from what the MACD shows, for example, when the price goes up, the indicator goes down.

Again, these movements or relationships are usually referenced to each other with respect to other indicators to avoid false signals or temporary fluctuations.

The other component of MACD is the zero line. – As the average moves up and down the line, it can indicate an uptrend momentum or a continuation of the downtrend. The zero line is seen at the point where the MACD averages intersect. The signal generated when the EMAs cross the zero line generally occurs later than the other signals emitted by the indicator, as the line must continue the trend longer before the indicator reaches the line.

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How can you use technical analysis to trade?

If you’ve ever seen an fx chart with multiple lines and waves, that’s exactly the technical analysis you can apply to measure future price trends. The concept behind technical analysis is that past price movements may be repeated, so traders try to understand price movements by predicting future movements.

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Various analysis tools available for Forex

There are various tools that can perform technical analysis. These include inflections, Japanese candlesticks, chart patterns, technical indicators, etc.

Inflections are probably the easiest technical analysis tool to understand and apply. This may include support to indicate the level at which prices are rising and resistance to the level at which prices are falling. Support and resistance may be determined by looking at past price movements and psychological levels (00s and 50s) and by applying formulas that generate potential support and resistance areas.

The trend line is also included below the inflection, connecting the ceiling price of recent price movements in the downtrend with the bottom price of recent price movements in the uptrend. You can also connect the ceiling and bottom values ​​in parallel to draw the upper and lower channels. The Fibonacci retracement and extension tools can also be used as an inflection to understand when prices will retreat in an ongoing trend.

Japanese candlestick analysis is used to compare open / close, high / low prices of price movements at a particular time and can be applied to both individual or group candlesticks. This can involve a lot of memorization work in terms of recognizing patterns, but this technical analysis tool has been applied for many years and is still used by the majority of traders.

Chart trends are also a reliable tool for technical analysis and, by their name, are easier to remember when compared to Japanese candlesticks. Double top and double bottom, head and shoulder, reverse head and shoulder, brush flag and bearish flag, ascending / descending / symmetrical triangle, cup and handle, etc.

Finally, technical indicators include moving averages, probabilities, RSI, parabolic SAR, Bollinger Bands, MACD, volume indicators and more. These are based on complex mathematical formulas and rationale for calculations, but it is important to understand how they work and how signals are generated.

For example, price movement averages usually include the average closing price over a particular time period. A fall in the moving average indicates that the currency pair has been declining continuously and may fall further in the future. These indicators can be used alone or in combination with other moving averages with different parameters.

These technical indicators can be categorized into leading and lagging indicators. As the name implies, the leading indicator signals before the trend changes, and the lagging indicator simply shows the trend in progress. It is generally recommended to observe the leading and lagging indicators in parallel, as the lagging indicators give a slow signal, whereas the leading indicators are displayed early and tend to give false signals. A list of these metrics can be found at FXPro’s Learning Center.

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