Convergence / Divergence Moving averages (MACD) was originally built by Gerald Appel an analyst in New York. Originally designed for analysis of trends in stocks and bonds, is now widely used in many markets.
The MACD is based on the moving average is a lagging indicator or delayed, but the MACD is more sensitive to price movements.
The MACD indicator consists of two lines, the first line in the traditional MACD is the MACD line, and it uses exponential moving average price of 12 periods (fast EMA) minus the exponential moving average price of 26 periods (EMA slow).
MACD = EMA [12] of price – EMA [26] Price
The line generated varies along the zero line (Center Line) without upper and lower limits.
Note: You can apply the EMA 12 and EMA 26 closing price, the opening price, the high price to low price, average price ((high low) / 2), the typical price ((high low close ) / 3) and weighted close price ((high low close close) / 4). The suggested retail price and the most used is the closing price.
The second line is called the signal line and a simple moving average uses 9 period of the previous line (MACD line).
Signal = MACD – SMA [9] of MACD
Settings MACD:
The typical recommended setting for the 26 EMA MACD is the slow moving average for the 12 EMA for the fast moving average and the SMA 12 for the signal line.
But you can choose settings to suit your investment style. Keep in mind that shorter moving averages will produce quicker indicator that is more sensitive to price movements while slowly moving averages will produce slower indicator that is less zigzagged.
How to use the MACD indicator to invest in Forex?
The MACD indicator signal generator is a bullish and bearish used to predict the market movement.
It can be used in different ways, the most used methods of trade with the MACD are:
1 – Cross moving average
2 – Crossing the center line.
3 – Divergence.
Cross the moving average
When the MACD crosses above (from bottom to top) of the period simple moving average 9, it generates a bullish signal.
On the contrary, when the MACD crosses below (from top to bottom) the period simple moving average 9, a bearish signal occurs
Note: These signs are usually false and must be confirmed with other indicators signals.
Crossing the midline:
When the MACD crosses above (bottom up) the zero line (center line), a bullish signal occurs.
On the contrary, when the MACD crosses above (bottom up) the zero line, a bearish signal occurs.
Like crossing signals moving average, these signals must be confirmed by other signals MACD (Divergence for example) or by other indicators.
Divergence:
When the MACD diverges from the trend of the market, this diverges from the trend when the MACD makes new highs while the price trend fails to reach those high spots and if there is a bullish signal.
Notice how the prices make new highs but the MACD indicates that it is weakening the downward trend, since it fails to maintain the same high. We see a price drop right after this sign.
On the contrary, the bearish signal occurs when the MACD makes a new low while the price trend fails to reach that low point.
Note: The MACD indicator can also be used as an indicator of overbought and / or on-sale when the 12 period moving average (EMA fast) has been crossing the 26 period moving average (EMA slow) and away a great distance and a long period, this usually is a sign of a sign sobre-compra/sobre-venta.
