HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
XM information and reviews
XM
86%
NordFX information and reviews
NordFX
86%

How to use macd indicator in forex trading?


To make the trading process easier and more successful many brokers and traders prefer to use forex economic indicators. These are half-automatic programs and aim at depicting this or that criteria depending on a demand. They help to analyze a currency market.

All indicators are founded on the following statistic indexes: the auction volume and prices. Analyzing these functions a trader can forecast whether a current trend tends to change or remain the same for a certain length of time. Traders rely on the mathematical calculations and know when to open or close their deals. However, the indicators do not take into consideration fundamental exponents like receipts and success of the companies whose shares are in the stock market. Experts, who can be found in broker ratings, can explain the last things.

There are a great variety of different indicators that work on different platforms. Today let's analyze MACD.

What is MACD?

The indicator Moving Average Convergence or Divergence (shortly MACD) was created and worked out by Gerald Appel in 1979. It is widespread when traders deal with commodity and stock markets. MACD belongs to oscillators (technical analysis) and is attractive in its simplicity and the absence of significant “noises” when processing signals. Usually traders use this indicator as one of the components when building the best forex strategy.

It is obvious that the principle of work is in averages and visualizes them for a better perception. There are two ways of programming and analyzing the indicator:

  1. linear MACD (used for trend analysis)
  2. bar chart MACD (class of oscillators)

How to input MACD

To calculate the linear MACD the average price with smaller period (shorter and faster) is subtracted from the average price with bigger period (longer and slower). The result is shown in a bar graph under calculation. After that another average evens the difference, which is depicted on the bar graph.

So, the formula is the following: MACDi = long average (Pi) – short average (Pi). The price is usually taken as a close one. However, other variants are also possible: an open price (the highest one), an average price, a typical one and so forth. As far as a type of average is concerned, exponential one is usually taken, but common average and different types of suspended average can also be taken depending on a trader’s situation and demand.

The second signal line is calculated like this: signal line = average (MACDi). By default the indicator has: 12 prices for a short average, 26 prices for a long one and for a signal – 9 prices.

To calculate the bar chart MACD a signal line is subtracted from MACD and the result is depicted in a new bar chart underneath the first one. The indicator’s bar chart has also zero line that aims at showing when the prices of 2 averages are the same (indicating the balance between the short and long periods of time). The indexes over the 0-line show the ascending tendency. If the indexes are below this line, there is the descending trend.

The MACD bar chart aims at measuring the distance between the signal line and MACD itself. It depicts this difference in its own bar graph. In case the MACD is over the line, the value is affirmative. If it is lower, then the value is subzero. In places where the averages meet, the bar graph depicts the zero figures.

Note

  1. It is very important to follow the minimum and the maximum of the signal line, because it means that the MACD indicator’s signal comes very soon.
  2. The bar graph MACD gives an opportunity to see who is stronger a buyer or a seller and how much the difference is between them. The tilt up means that a buyer is stronger than earlier but not necessarily in comparison with sellers. The tilt down means the contrary. When the tilt in the lower zone changes from down to up, a "buy" signal comes. When the tilt in the affirmative zone changes from up to down, it may be time to sell.
  3. The maximums and minimums in the bar chart MACD anticipate the changes in prices a bit. If a trader is attentive enough, he can prepare for the according actions.

The disadvantages of the MACD indicator

It is no doubt that MACD is not a perfect indicator and has its own disadvantages:

  1. Many false signals.
  2. The linear MACD is late as far as trend signals are concerned.
  3. No universal input settings. The more detailed the information is the better signals it depicts.

When traders work in the forex currency exchange market, indicators are really good assistants as they help to follow the trends and make profitable deals. So, the use of indicators and advisors is a step towards experience and in the end to success.


RELATED

Everything you need to know about Margin Trading

How can you become more skilled in online CFD trading? The key is to possess as much knowledge as possible about anything that concerns the financial markets and the available trading tools and resources...

Avoiding Bull Traps in Trading: Understanding and Strategies

In the dynamic realm of financial trading, a solid comprehension of various market phenomena is the linchpin for triumph. A pivotal concept that demands traders' attention...

Trading The Gap: What Are Gaps & How To Trade Them?

All traders occasionally encounter the phenomenon of price gaps and might get confused. Gaps are encountered in all financial markets and most often appear on Monday...

Golden Cross trading strategy

The Golden Cross is a candlestick chart pattern that gives a bullish signal. When a short-term moving average crosses above a long-term moving average, it is called a crossover...

Investment Strategies: How To Choose The Right One For You

One person wants to save for retirement 25 years. Another wants to invest in various instruments for no longer than a year. These investors have different goals and investment timing, which means different market behavior...

Best profit taking strategies in trading

Though many traders don't know it, a profit-taking strategy is a crucial part of the trading process. Knowing when to exit a trade when in the green is one of the tougher...

Scalping or Day Trading. Which trading style should a trader choose?

Among the many popular trading styles with both beginners and experienced traders are scalping, which allows you to extract small portions of profit from each price movement, and day trading, which aims to trade over a single day.

Price Action Trading: The how-to guide

Price action trading is a popular strategy used by traders to analyze the movement of an asset's price over time. This is done by identifying patterns on candlestick...

Trading with News

In this article, we discuss the role of news and economic data releases in forex trading and how traders can incorporate this information into their trading strategies...

Deep Dive into Low-Spread Scalping Strategies for Forex Traders

In the realm of Forex trading, where rapid price movements and market dynamics are the norm, scalping stands out as a popular approach that leverages minute fluctuations....

Risk Management In Forex Trading: Main Principles

As we know, forex trading is a very risky business. In other words, a trader can lose money, if the market rate changes to an unfavorable side. However, the threat of financial losses in trading cannot be totally ruled out...

Best Forex Manual Trading Strategies: Grid Trading And More

Manual forex strategies differ from automated and semi-automated trading methods in that all market analysis and other actions are performed by the trader, without the use of additional indicators...

Crypto trading in 2023: trade crypto with a strategy

Crypto trading has had its difficulties over the last few years, and many traders are now wondering whether to trade crypto in 2023 or ever again...

Cryptocurrency Trading Strategies: Learn to Profit From Bitcoin and Ethereum

Trading the highly volatile assets can lead to substantial profits, especially when combined with superior trading tools such as 100x leverage, further amplifying their wealth-generating power...

How to Make a Cryptocurrency Trading Plan

With each passing day, more and more traders join in on cryptocurrency trading. It’s unsurprising, considering the cryptocurrency market has been rapidly expanding for over a decade...

Top 11 Forex Trading Strategies in 2023

Trade popular currency pairs at low cost with Vantage. Vantage is a leading regulated forex broker offering access to the world’s most popular currency pairs...

Profitable Forex Trading Strategies Nobody Tells You About

One of the key aspects to be successful in trading is to maintain a high level of discipline. One keyway to enforce discipline on the FX market is to have a robust...

Steps to a successful forex trading strategy

Are you an aspiring trader on the cusp of diving into the world of trading forex but unsure how to go about it? Or are you a seasoned forex trader perhaps who’s become a little too complacent...

Top 10 Strategies for Earning Passive Income with Crypto

Passive income in the context of cryptocurrency refers to earning income from digital assets without actively trading or participating in day-to-day activities...

Best times to trade popular financial instruments

Trading in the financial markets in a way that increases your potential for success requires skill, expertise, vigilance, and grit. Knowing the best times to trade the market is dependent...

Vantage information and reviews
Vantage
85%
FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.