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

Range Trading: A Simple Forex Strategy Explained

It is natural for all traders to seek the best possible technique for achieving their trading goals. As range trading becomes increasingly popular, more and more people are looking...

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...

How to develop your signature Forex trading strategy

Trading in the Forex market is a complex daily work that requires great strength, knowledge and experience. Before a trader...

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...

Forex signals and strategy systems in currency trading

Exchange of a nation's currency for that of another is Foreign Exchange (FOREX). The foreign exchange market is a largest non-stop financial market in the world...

Mastering the Trading Plan: A Comprehensive Guide to Minimizing Errors and Enhancing Profits

In the high-stakes world of trading, the old adage, "Those who fail to plan, plan to fail," resonates profoundly. The dynamic world of trading requires more than just intuition...

Backtest a Trading Strategy: Can you apply it to Forex Market?

Backtesting is a way to look at how a trading plan or idea has been done in the past. A trader can either physically backtest an approach or use backtesting software...

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...

Should I invest aggressively?

Wondering what market execution style you need to follow to get the profit you want? Continue reading today's article to learn more!

Best ETF Trading Strategies For Traders To Consider

Exchange-traded Funds (ETFs) offer diversification, low cost and flexibility. They are also well-suited to a variety of trading strategies, ranging from basic to advanced...

Six Forex Trading Strategies for Beginners

Your trading journey in forex trading hinges on the proper selection and application of trading tools so as to optimise your potential opportunities...

Dogecoin vs. Shiba Inu: Which one is the Better Investment?

Dogecoin and Shiba Inu have captured many crypto headlines over the last few years, as some have become millionaires overnight. However, deciding on buying Shiba Inu vs. Dogecoin...

Elder's three screens strategy

As a rule, it is very difficult to analyze the market using just one indicator. However, there are many facts when different indicators used simultaneously...

Bill Williams' Trading System

Bill Williams is a world famous trader, developer of analytical indicators and creator of Profitunity strategy. In 1987, his first works on trading in the stock...

Forex trading techniques

The forex market is an incredibly active and highly volatile financial market accessed by millions of traders worldwide. With a daily trading volume exceeding US$6 trillion...

Why trading goals matter

Without clear goals, trading can become an impulsive, messy process that may lead to haphazard results, or at worst, large financial losses. Clearly defined trading goals...

Trading exit strategies: How and when to exit a trade

Imagine being so in control of your exit strategies that you could come out of a losing trade without feeling any emotion and simply move on, unaffected...

Top Gold Trading Strategies and Tips

Trading gold is much like trading forex if you use a spread-betting platform. A gold trading strategy can include a mix of fundamental, sentimental, or technical analysis...

Strategies for Trading Forex CFDs

This article will explore various strategies for trading forex CFDs. Understanding these strategies will empower you to make informed trading decisions...

Copy Trading: A Comprehensive Guide to Social Financial Strategy

Modern trading platforms and strategies continually evolve, offering investors innovative ways to navigate financial markets. One such strategy that's been catching waves lately is copy trading...

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.