What is MACD? Does it really help with Forex trading? Well, many traders swear by it. I’ll review a few popular ways to use it. I’ll also tell you the only way to use this and other indicators.
MACD stands for “moving average convergence/divergence”. Now that’s a mouth full. It is a graphical representation macd of the average price trend of a currency pair. People add this to the bottom of their charts to help predict the trend (direction either up or down) of a currency pair.
A MACD divergence is the most popular technique used with this indicator. It tends to be pretty consistent. A bullish divergence is when price makes a new low and the MACD line is higher than its previous low point. This is where the “divergence” occurs. The indicator’s line is moving in a different direction than the price. It’s diverging away from it. This creates a signal to buy. Bearish divergence is the same idea. Instead of predicting a buy point, it tells you that the current up-trend is coming to an end. This is a good place to exit a trade.
I’ve used this method to help me pinpoint the best times to enter and exit a trade. I do not use it by itself. There have to be other signs on the candlestick chart that paint a picture of a possible trade setup. A typical combination would be to watch for support and resistance points that price goes through. When this happens at the same time the MACD indicator is showing a bullish or bearish divergence, it could be a good time to enter a trade.
If you are relatively new to trading, you need to be fully aware that there are many technical tools that can be used. There isn’t one indicator that can be used alone. You need to use multiple technical trade techniques to interpret what’s about to happen. This is very difficult for most people.