MACD Indicator Trading Strategy

In the end of 1970, there is doctor from United State America who active in the stock trade, he developed a technical indicator and named with Moving Average Convergence Divergence or MACD, his name is Gerald Appel. MACD is the one of technical indicator which can help you to identify change movement of market price. In other hand, MACD can give information whether trend is going to strong or weak. If you read the name maybe you can guess that the basic calculation of MACD is Moving Average. That is correct. But in this article we don't speak about basic theory of Moving Average and its calculation. In this chapter we are going to discuss about how to read Moving Average Convergence Divergence to find opportunity, because that is the main purpose why we learn technical analysis and make money from the financial market, right?

Standard MACD is the main indicator of Metatrader, which has several components :

1. Zero line
2. Histogram, Vertical lines
3. MACD Signal line, which usually showed as dot red line

MACD histogram is the indicator that we can assume that the trend is going to weak or strong. When the MACD histogram longer then we can assume the momentum is bigger or strong downtrend, and if the histogram is shorter, then we can assume the momentum is smaller and in this situation usually the market price will make reverse movement.

We also can use MACD to find entry signal using histogram and MACD signal line. When the MACD signal line "release" from Histogram line we can use it as signal.

Buy trading signal from MACD is show when the MACD line move from histogram under zero line, and Sell trading signal when the MACD signal line move from Histogram above zero line.

MACD indicator technical has weaknesses. Standard setting of MACD trading indicator usually gives false signals. For that you must be more careful when you use this forex indicator. And we suggest you to use bigger time frame to reduce false signal such as 4 hours frame, or daily time frame.

Determine divergence using MACD indicator

How to find divergence movement using MACD Forex indicator? basically, we can use the same method as Stochastic indicator, CCI indicator, or RSI Relative Strength Index indicator to find divergence movement in market price movement. With MACD indicator, you can watch the tops and valleys of histogram. Bullish divergence occurs when the price chart getting lower but the histogram valley is going higher. On that time histogram is under zero level. Confirmed from bullish divergence is when the histogram move up to zero level. Bellow picture is one of examples when the bullish divergence occur on Moving average convergence divergence MACD indicator.

Bearish divergence occur when the top of price chart getting higher but the top of histogram getting lower. On that time histogram is above zero level. Confirmed from Bearish divergence is when the histogram move downward to zero level. Bellow picture is one of the Bearish divergence examples which on Moving Average Convergence Divergence indicator Forex.