Macd Technical Indicator Explained
If you have been reading my post, you will find that I have been talking about the power of a technical indicator known as MACD (Moving Average Convergence Divergence). One very important use of this indicator will be to avoid the forex traps that occur during trading.
The reason why I love to use this indicator is because it can be used in different ways to help us in our trading and this is what I am going to share with you today in this post.
Below are ways that I use the MACD technical indicator for:
1) Read The Trend: Other than the moving average, I also use the MACD technical indicator to help me tell the trend of the market I am in. To read the trend, you simply need to see whether the MACD and its trigger lines are above or below the waterline. If they are above the waterline, you are in an uptrend and if they are below the waterline, you are in a downtrend.
2) Strength of Trend: To tell the strength of the trend you are in, you can make use of the MACD histogram. The histogram is made up of bars which vary in height. When you are in an uptrend and you see the histogram shortening, what it means is the buyers are reducing and sellers are increasing and this usually mark the end of the trend or at least a retracement is coming.
When you are in a downtrend and you see the histogram shortening, it is signaling to you that the buyers are increasing and sellers are reducing and similar to the above situation, you are likely to see a retracement or a change in trend.
3) MACD Divergence: This is a very powerful tool of the MACD technical indicator. Personally I feel that the divergence in MACD is one of the many reliable signals that you must trade.
When you find that the market is making higher high while the MACD indicator is making lower high, you are having a negative divergence in the market. Whenever you see the formation of negative macd divergence, it is an indication that the market is going to move down.
When you see the market making lower low while the macd indicator making higher low, you are having a positive divergence and this is an indication that the market is going to move up.
The above are 3 ways you can make use of the macd technical indicator in your trading. I have been using them with good results in my trading and I believe that it can be of great use to you as well.
If you have other ways of using this indicator in your trading, please share with us by commenting below. In addition, if you find this post useful and can be of use to anyone you know, please retweet this post to share with them.
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