Moving Average Convergence Divergence (MACD) In Forex
MACD was invented by Gerald Appel in the 60s and stands for Moving Average Convergence / Divergence (moving average convergence / divergence). This indicator is often used to reverse in the short term trend. Also the MACD is often reflected in forex trading systems.
The MACD consists of 3 components:
Signal line: 9-day exponential moving average of the MACD line
MACD line: difference between 12-day - and 26 day exponential moving average
Histogram: difference between the MACD and signal line
MACD Formula:
Using MACD In Currency Trading
In order to optimally exploit the MACD must first determine the general trend to be. This can be easily done by drawing a trend line by plotting a moving average on the forex chart or using chart patterns and candlesticks. See the figure below how a candlestick pattern used to confirm a trend reversal and in which the MACD line crosses the 0 from below (bullish).
General rules:
Is the trend is rising, then MACD signals are only taken the 0 line from bottom to top crossing.
The trend is decreasing, then there are only MACD signals taken the 0 line crosses from top to bottom.
The trend is sideways, then it is best to wait until an upward or downward trend can be observed.
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