Learn Forex Know the Moving Average Convergence Divergence

In the late 1970s, there was a doctor in the United States who is also active in stock trading to develop a technical indicator called Moving Average Convergence Divergence (MACD). He is Prof. Gerald Appel.

MACD is a technical indicator that can help you to identify changes in direction. In addition, the MACD can provide information on whether the ongoing trend is strong enough or not.

From the name you may have already guessed that the basis used MACD is Moving Average. So true. But we will not discuss the basic theory and calculations. In this article we will discuss how to read MACD to find opportunities, because that's the purpose of our study of technical analysis: making money from the financial market.

MACD standard which is inherited from the Metatrader platform has the following components:

1. Zero Line

2. Histogram, in the form of vertical lines

3. MACD Signal Line, which is usually displayed as a dotted red line.

The histogram is an indicator of whether the trend is strong enough or not. If the histogram getting longer, it means that the momentum becomes larger (downtrend is growing stronger). But if the histogram is getting shorter, it is an indication that momentum wane. It will usually be followed by a correction.

MACD can also be used to look for entry signal. The trick is to pay attention to the histogram and MACD signal line. When the MACD signal line "disengage" from the histogram, that is the signal.

Buy signal when the MACD signal line is separated from the histogram below the zero line, while the sell signal is when the MACD signal line off of the histogram above the zero line.

MACD has a weakness. The default setting of the MACD often creates fake signal. For that you should be careful using this MACD and recommended for use in a rather long time frame, for example graph 4-hourly or daily charts.

Finding divergence

How do I find using MACD divergence?

Basically, the same way to recognize divergence on other indicators such as stochastic, CCI or RSI.

At the MACD, you notice is the peaks and valleys of the histogram.

Bullish divergence is when the lower valley, but the valley graph histogram higher. At the time of the histogram is below the zero level. Confirmation of the bullish divergence is when the histogram rises to above the zero level. The picture below is one example of a bullish divergence on MACD incident

Bearish divergence is when the top of the chart but the higher the histogram peak is lower. At the time of the histogram is above the zero level. Confirmation of a bearish divergence is when the histogram down to below zero level. Below is an example of bearish divergence seen on the MACD.