MACD indicator in technical analysis

MACD is one the most popular indicator in the forex industry. Almost every single trader has used this indicator at least once in his lifetime. MACD which stands for Moving Average Convergence/Divergence is one of the most powerful and reliable momentum oscillators used by the professional trader. Trader waits for the signal line crossover and divergence in MACD to enter into a trade.

Let’s look at an example of GBPUSD daily chart with MACD indicator

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Figure: MACD indicator with Histogram

The MACD indicator is based on three exponential moving average.12 day exponential moving average, 26-day exponential moving average and the main Red line which is the 9-day exponential moving average. The histogram shows positive value when the MACD line is above the signal line which is a red line in the graph. It shows negative value when the MACD line is below the signal line.

Overview

Professional trader loves to bring variation in the value of exponential moving average values used in the MACD indicator. However, variation MACD data is only applicable to the experienced professional trader. Professional trader test different values of MACD with the different time frame and market environment and chose the best possible value for them.

The market is generally considered to be bullish when the signal line is above the positive histogram. The bearish momentum of the market is represented by the negative histogram with the signal line below it. “Best trades are executed with MACD indicators when the MACD data analysis is incorporated with other technical parameters.”

MACD indicator can be very profitable for short-term trading strategies. There are some technical issues while trading with long-term strategies with MACD. But this technical issues can be easily eradicated by altering the values of MACD. “But altering the values should be done with proper back testing”

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