MACD
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MOVING AVERAGE CONVENGENCE DIVERGENCE (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price.
The MACD is constructed based on a series of moving averages and how they relate to one another. The standard MACD looks at the relationship between a currency pairs 12-period and 26-period exponential moving average. Specifically, the MACD looks at the distance between these two moving averages. If the 12-period moving average is above the 26-period moving average, the MACD line will be positive. If the 12-period moving average is below the 26-period moving average, the MACD line will be negative. The MACD line is accompanied by a signal line. This line is a 9-period exponential moving average of the MACD line.
The moving average convergence divergence (MACD) enjoys the following strengths:
It helps you identify when the momentum of a currency pair changes
It helps you confirm the strength of current trends
Bullish signal: The MACD cross above the signal line
Bearish signal: The MACD cross below the signal line
Fast length: 12
Slow length: 26
Signal smoothing: 9
Entry signal - when the MACD crosses above the signal line, you can buy the currency pair knowing that momentum has shifted from being bearish to being bullish.
When the MACD crosses below the signal line, you can sell the currency pair knowing that momentum has shifted from being bullish to being bearish.
Exit signal - when the MACD crosses back below the signal line when you have bought the currency pair, you can sell the currency pair back knowing that momentum has shifted back from being bullish to being bearish.
When the MACD crosses back above the signal line when you have sold the currency pair, you can buy the currency pair back knowing that momentum has shifted back from being bearish to being bullish.
Bullish signal: The MACD cross above the zero line
Bearish signal: The MACD cross below the zero line
Fast length: 12
Slow length: 26
Signal smoothing: 9
Entry signal - when the MACD crosses above the zero line, you can buy the currency pair knowing that momentum has shifted from being bearish to being bullish.
When the MACD crosses below the zero line, you can sell the currency pair knowing that momentum has shifted from being bullish to being bearish.
Exit signal - when the MACD crosses back below the zero line when you have bought the currency pair, you can sell the currency pair back knowing that momentum has shifted back from being bullish to being bearish.
When the MACD crosses back above the zero line when you have sold the currency pair, you can buy the currency pair back knowing that momentum has shifted back from being bearish to being bullish.
