How to interpret MACD indicator

MACD is the most popular technical analysis for forex trading. I see everyday on people trading chart platform. As you know a lot of people use this MACD indicator but not all know how to use MACD effectively. Let's begin with understanding what MACD made of, first of all MACD is short for Moving average convergence divergence. The most common formula is 12, 26, 9. The way it works is the macd line is made of the difference between the value of 12 day adn 26 day exponential moving average indicator. Then a 9 day of exponential moving average indicator of the MACD is superimposed as the signal line. MACD Moving average convergence divergence is oscillator technical indicator in other words the MACD fluctuates above and below a center line or zero line. This type oscillator indicator is good to to identifying strength and weakness or direction of the momentum behind the market price moves.

As we talk about formula, the MACD indicator has 2 exponential moving average indicator EMA, 12 EMA indicator and 26 EMA indicator plotted on a price chart. The difference between faster line - 12 EMA and slower line - 26 EMA is plotted down below in our MACD indicator window. Typically when the MACD line move above the center line then we are in bullish situation and when the MACD line move below the center line then we are in bearish mode for trading.