MACD Forex Trading Technical Analysis Signals
Created by Gerald Appel,
The Moving Average Convergence/Divergence is one of the simplest, reliable, and most oftenly used indicators.
It is a momentum oscillator & also a trend-following indicator.
Construction
The construction of this indicator calculates the difference between two moving averages and then plots that as the "Fast" line: a second "Signal" line is then calculated from the resulting "Fast" line and then drawn on the same panel window as the "Fast" line.
- "Fast" line - Blue Line
- "Signal" line- Red Line
The "standard" MACD values for "Fast" line is a 12-period exponential moving average & a 26-period exponential moving average & a 9-period exponential moving applied to the fast line, this plots "Signal" line.
- Fast-line = difference between 12 and 26 exponential moving averages
- Signal-line = moving average of this difference of 9-periods
Forex Trading Analysis and Generating Signals
The MACD is oftenly used as a trend-following indicator & works most effectively when interpreting trending market movements. The 3 common techniques of using MACD to generate signals are:
FX Trading Crossovers Forex Trading Signals:
Fast-line/Signal Line Crossover:
- A buy trading signal is generated when Fast Line crosses above Signal Line
- A sell trading signal is generated when FastLine crosses below the Signal Line.
However, in a strong trending market this signal gives a lot of whipsaws, the best cross over to use would thus be the Zero Line Crossover Signal that's less prone to whipsaws.
Zero Line Crossover Trading Signals:
- When the Fast Line crosses above zero center line a buy trading signal is generated.
- when the FastLine crosses below the zero center line a sell trading signal is generated.
FX Trading Divergence Forex Trading:
Looking for divergences between the MACD and price can prove to be very effective in spotting potential reversal &/or trend continuation points in price movement. There 2 types of divergences:
- Classic Divergence Signals
- Hidden Divergence Trading Signals
Overbought/Oversold Conditions:
MACD indicator is also used to spot potential overbought/oversold conditions in price action movements.
These levels are generated if the shorter MACD Lines separate dramatically from the median, this is an indication that price action is over-extending & it will soon return to more realistic levels.
MACD and Moving Average FX Trading Crossover Forex Trading System
This indicator can be combined with others to form a Forex trading system. A good combination with the Moving Average crossover system. A trading signal is generated when both give a signal in the same direction.
Technical Analysis in FX Trading
