Moving Average Convergence Divergence (MACD pronounced Mac Dee) is one of the most reliable and simple tool in your trading arsenal as a currency trader. MACD is a trend following momentum oscillator or indicator.

MACD shows the relationship between two moving averages of recent prices. It is a lagging indicator. Most technical indicators are lagging which means they are slow. They just tell you what just happened after the fact.

Technical analysis is based on the belief that all available information is immediately impounded into the prices and the past prices can be used to predict the future prices in the currency markets. Learning technical analysis is must for you if you want to succeed as a currency trader.

Many chart types are used in the technical analysis. Technical analysis helps you to read your charts and analyze the price action with technical indicators. Learning how to use technical indicators is the key to understanding the market behavior.

MACD is calculated by subtracting a slow exponential moving average (EMA) from a fast exponential moving average. Signal line is calculated by the taking the EMA of MACD for a number of bars. The Histogram is the difference between the MACD and its signal line.

MACD is one of the most popular indicators used in currency trading. However, beware that MACD is often misunderstood and misused. Like any other technical indicator you should use it in conjunction with other technical indicators.

In case of Crossovers, when MACD falls below the signal line, it is a bearish signal. It indicates the time to sell. Conversely, when MACD rises above the signal line, it is a bullish signal. It indicates that it may be time to buy.

In case of a Divergence, when the price diverges from MACD, it indicates the end of the current trend. Negative Divergence is when the price is rising and MACD is falling. It is an indication of the change in the trend. Thats right; the lagging indicator that is supposed to follow the price is predicting future behavior.

Dramatic Expansion: Dramatic expansion occurs when the shorter moving average pulls away from the longer moving average. When MACD expands dramatically, it is an indication that the currency is overbought/ oversold and may return to normal soon.

One thing should be very clear when you use a MACD. All the above three cases are important and should not be overlooked by you as a currency trader. However, none of them alone are signals for a trade. If you simply start trading on MACD Divergence, it may not yield a profitable trade. MACD Divergence is tradable when confirmed by other indicators.

However, when confirmed by other technical indicators, success is more likely. This is because of the fact that several things are happening at the same time. Each is attracting the same bulls and bears into the trade that you are planning to make. So you have to confirm your finding with other technical indicators.

MACD crossovers and dramatic rises are easy to spot. However, spotting MACD divergence takes a little practice.

Related posts:

1. Simple Moving Average - Ways To Use The SMA Indicator We mention that the simple moving average is line produced...
2. MACD Divergence Explained Understanding and interpreting a MACD divergence can be very helpful...
3. Moving Average - Utilizing The Moving Average Indicator Moving Average based indicators are one of the most frequently...
4. Using MACD in CFD Trading The MACD indicator is one of the most reliable, simplest...
5. Forex Trading- MACD the secret weapon The MACD indicator is one of the most reliable, simplest...

Related posts brought to you by Yet Another Related Posts Plugin.