{"id":9598,"date":"2022-10-12T08:10:39","date_gmt":"2022-10-12T08:10:39","guid":{"rendered":"https:\/\/mdr.foobrdigital.com\/?p=9598"},"modified":"2022-10-12T08:10:39","modified_gmt":"2022-10-12T08:10:39","slug":"how-to-use-the-macd-indicator","status":"publish","type":"post","link":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/2022\/10\/12\/how-to-use-the-macd-indicator\/","title":{"rendered":"How to Use the MACD Indicator"},"content":{"rendered":"\n<p>What is&nbsp;<strong>MACD<\/strong>?<\/p>\n\n\n\n<p>MACD\u00a0is an acronym for\u00a0<strong>M<\/strong>oving\u00a0<strong>A<\/strong>verage\u00a0<strong>C<\/strong>onvergence\u00a0<strong>D<\/strong>ivergence.<\/p>\n\n\n\n<p>This technical indicator is a tool that\u2019s used to identify moving averages that are indicating a new trend, whether it\u2019s bullish or bearish.<\/p>\n\n\n\n<p>After all, a top priority in trading is being able to&nbsp;<strong>find a trend<\/strong>, because that is where the most money is made.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/bpcdn.co\/images\/2016\/05\/grade5-MACD-histogram.png\" alt=\"MACD\" title=\"MACD\"\/><\/figure>\n\n\n\n<p>With a MACD chart, you will usually see three numbers that are used for its settings.<\/p>\n\n\n\n<ul><li>The first is the number of periods that are used to calculate the&nbsp;<strong>faster-moving average<\/strong>.<\/li><li>The second is the number of periods that are used in the&nbsp;<strong>slower moving average<\/strong>.<\/li><li>And the third is the number of bars that are used to calculate&nbsp;<strong>the moving average of the&nbsp;<em>difference<\/em>&nbsp;between the faster and slower moving averages<\/strong>.<\/li><\/ul>\n\n\n\n<p>For example, if you were to see \u201c<strong>12, 26, 9<\/strong>\u201d as the MACD parameters (which is usually the default setting for most charting software), this is how you would interpret it:<\/p>\n\n\n\n<ul><li>The&nbsp;<strong>12<\/strong>&nbsp;represents a moving average of the previous 12 bars.<\/li><li>The&nbsp;<strong>26<\/strong>&nbsp;represents a moving average of the previous 26 bars.<\/li><li>The&nbsp;<strong>9<\/strong>&nbsp;represents a moving average of the&nbsp;<em>difference<\/em>&nbsp;between the two moving averages above.<\/li><\/ul>\n\n\n\n<p>There is a common misconception when it comes to the lines of the MACD.<\/p>\n\n\n\n<p>There are two lines:<\/p>\n\n\n\n<ol><li>The \u201c<strong>MACD Line<\/strong>\u201c<\/li><li>The \u201c<strong>Signal Line<\/strong>\u201c<\/li><\/ol>\n\n\n\n<p>The two lines that are drawn are NOT moving averages of the price.<\/p>\n\n\n\n<p>The&nbsp;<strong>MACD Line is the difference (or distance) between two moving averages<\/strong>. These two moving averages are usually exponential moving averages (EMAs).<\/p>\n\n\n\n<p>When looking at the indicator, the MACD Line is considered the \u201cfaster\u201d moving average.<\/p>\n\n\n\n<p>In our example above, the MACD Line is the&nbsp;<em>difference<\/em>&nbsp;between the 12 and 26-period moving averages.<\/p>\n\n\n\n<p>The&nbsp;<strong>Signal Line is the&nbsp;<em>moving average<\/em>&nbsp;of the MACD Line.<\/strong><\/p>\n\n\n\n<p>When looking at the indicator, the Signal Line is considered the \u201cslower\u201d moving average.<\/p>\n\n\n\n<p>The slower moving average plots the average of the previous MACD Line. Once again, from our example above, this would be a 9-period moving average.<\/p>\n\n\n\n<p>Most charts use a 9-period exponential moving average (EMA) by default.<\/p>\n\n\n\n<p>This means that we are taking the average of the last 9 periods of the \u201cfaster\u201d MACD Line and plotting it as our \u201cslower\u201d moving average.<\/p>\n\n\n\n<p>The purpose of the Signal Line is to&nbsp;<strong>smooth&nbsp;<\/strong>out the sensitivity of the MACD Line.<\/p>\n\n\n\n<p>The&nbsp;<strong>Histogram<\/strong>&nbsp;simply plots&nbsp;<strong>the&nbsp;<em>difference<\/em>&nbsp;between the MACD Line and Signal Line<\/strong>.<\/p>\n\n\n\n<p>It is a graphical representation of the&nbsp;<strong><em>distance&nbsp;<\/em>between the two lines<\/strong>.<\/p>\n\n\n\n<p>It may sometimes give you an early sign that a crossover is about to happen.<\/p>\n\n\n\n<p>If you look at our original chart, you can see that, as the two moving averages (MACD Line and Signal Line) separate, the histogram gets bigger.<\/p>\n\n\n\n<p>This is called a MACD&nbsp;<strong>divergence<\/strong>&nbsp;because the faster moving average (MACD Line) is \u201cdiverging\u201d or moving away from the slower moving average (Signal Line).<\/p>\n\n\n\n<p>As the moving averages get closer to each other, the histogram gets smaller. This is called c<strong>onvergence<\/strong>&nbsp;because the faster moving average (MACD Line) is \u201cconverging\u201d or getting closer to the slower moving average (Signal Line).<\/p>\n\n\n\n<p>And that, my friend, is how you get the name,&nbsp;<strong>M<\/strong>oving&nbsp;<strong>A<\/strong>verage&nbsp;<strong>C<\/strong>onvergence&nbsp;<strong>D<\/strong>ivergence! Whew, we need to crack our knuckles after that one!<\/p>\n\n\n\n<p>Ok, so now you know what MACD does. Now we\u2019ll show you what MACD can do for YOU.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How to Trade Using MACD<\/h2>\n\n\n\n<p>Because there are two moving averages with different \u201cspeeds\u201d, the faster one will obviously be quicker to react to price movement than the slower one.<\/p>\n\n\n\n<p>When a new trend occurs, the&nbsp;<strong>faster line<\/strong>&nbsp;(MACD Line) will react first and eventually cross the&nbsp;<strong>slower line<\/strong>&nbsp;(Signal Line).<\/p>\n\n\n\n<p>When this \u201ccrossover\u201d occurs, and the fast line starts to \u201cdiverge\u201d or move away from the slower line, it often indicates that a new trend has formed.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/bpcdn.co\/images\/2016\/05\/grade5-MACD-fast-slow.png\" alt=\"MACD with fast and slow moving average\" title=\"MACD with fast and slow moving average\"\/><\/figure>\n\n\n\n<p>From the chart above, you can see that the fast line&nbsp;<strong>crossed UNDER&nbsp;<\/strong>the slow line and correctly identified a new downtrend.<\/p>\n\n\n\n<p>Notice that when the lines crossed, the Histogram temporarily disappears.<\/p>\n\n\n\n<p>This is because the&nbsp;<strong>difference between the lines at the time of the cross is 0<\/strong>.<\/p>\n\n\n\n<p>As the downtrend begins and the fast line diverges away from the slow line, the histogram gets bigger, which is a good indication of a strong trend.<\/p>\n\n\n\n<p>Let\u2019s take a look at an example.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><a href=\"https:\/\/bpcdn.co\/images\/2016\/05\/grade5-MACD-example2.png\"><img decoding=\"async\" src=\"https:\/\/bpcdn.co\/images\/2016\/05\/grade5-MACD-example.png\" alt=\"MACD crossover example\" title=\"MACD crossover example\"\/><\/a><\/figure>\n\n\n\n<p>In EUR\/USD\u2019s 1-hour chart above, the fast line crossed above the slow line while the histogram disappeared. This suggested that the brief downtrend could potentially reverse.<\/p>\n\n\n\n<p>From then,\u00a0EUR\/USD\u00a0began shooting up as it started a new uptrend. Imagine if you went long after the crossover, you would\u2019ve gained almost 200 pips!<\/p>\n\n\n\n<p>There is one drawback to MACD.<\/p>\n\n\n\n<p>Naturally,&nbsp;<strong>moving averages tend to LAG behind price<\/strong>.<\/p>\n\n\n\n<p>After all, it\u2019s just an average of historical prices.<\/p>\n\n\n\n<p>Remember, the MACD indicator consists of three components:<\/p>\n\n\n\n<ol><li>The&nbsp;<strong>MACD Line<\/strong>&nbsp;which represents the difference between two moving averages.<\/li><li>The&nbsp;<strong>Signal Lin<\/strong>e which is a moving average of the MACD Line.<\/li><li>The&nbsp;<strong>Histogram<\/strong>&nbsp;which is&nbsp;a graphical representation of the distance between the MACD Line and Signal Line.<\/li><\/ol>\n\n\n\n<p>That said, MACD is still one of the most favored tools by many traders.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote\"><p><\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>What is&nbsp;MACD? MACD\u00a0is an acronym for\u00a0Moving\u00a0Average\u00a0Convergence\u00a0Divergence. This technical indicator is a tool that\u2019s used to identify moving averages that are indicating a new trend, whether it\u2019s bullish or bearish. After all, a top priority in trading is being able to&nbsp;find a trend, because that is where the most money is made. With a MACD chart, [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[887],"tags":[],"_links":{"self":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9598"}],"collection":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/comments?post=9598"}],"version-history":[{"count":0,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9598\/revisions"}],"wp:attachment":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/media?parent=9598"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/categories?post=9598"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/tags?post=9598"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}