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Forex Trading Moving Average Convergence/Divergence (MACD)
Forex trading Moving average convergence divergence (MACD), is one of the most popular technical analysis indicators available for traders.
One of the biggest advantages of this indicator is that it can be used either as a trend or as a momentum indicator. The MACD calculates the difference between the 26th day and the 12th day exponential moving average indicator(EMA). The 12-day EMA is the faster indicator and the 26-day is the slower one. These measures use the closing prices of the period that is measured.
The 9th day EMA is also used for MACD, in order to calculate triggers for buy and sell orders. One of the reasons for EMA's popularity is its wide use in global forex trading, relative to its ease and friendliness of use.
- A bullish signal is generated when the MACD gets above the 9th day EMA.
- The MACD sends a sell sign when it moves below its 9-day EMA.
The MACD histogram
The MACD histogram is the representation of the difference between MACD and the 9-day EMA. The histogram is positive when MACD is above its 9-day EMA and negative when MACD is below its 9-day EMA. For rising speed of prices the MACD histogram grows larger. The histogram contracts, on the other hand, for price speed decrease.
Traders use the MACD to evaluate the momentum and the strength of a trend, rather that for estimating trend direction, because it measures price movement speed.
Sometimes the prices will make a new swing high or swing low, while the MACD will not. This is called a Forex trading divergence. This indicator is not accurate, and should not be relied upon.
Trudy Bates - Market Expert