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Thread: MACD - Moving Average Convergence Divergence

  1. #1
    haythemkr Guest

    MACD - Moving Average Convergence Divergence

    MACD was created by Gerald Appel. MACD belongs to the Momentum Oscillators, that indicate the dynamics and strength of the current trend and oscillates around the zero line in both directions.

    MACD is an abbreviation for Moving Average Covergence Divergence. As the title says, it is all about approaching and retreating of moving averages (convergences and divergences).
    MACD consists of three moving averages. Their usual settings are to 9, 12 and 26 time periods. The periods mentioned are just recommended but every trader can set the MACD according to his own preferences.
    The construction of MACD is quite easy despite hard enough to explain. The calculation is as follows:
    1. MA12 MA26 (subtract the 26-day EMA from the 12-day EMA). So we get quite new values called just MACD.
    2. Calculate the MA9 (9-days moving average) of the MACD values. This moving average is called a Trigger line.
    3. In 1986 Thomas Aspray introduced so called MACD histogram in addition. MACD Trigger line = MACD Histogram. MACD Histogram is the result of subtracting the Trigger line from the MACD values. Histogram is just a graphic expression of the relations between MACD and its Trigger line. Should the MACD be higher than Trigger line, MACD Histogram is positive. Should it be lower, the Histogram would be negative. When MACD gets the same values as its Trigger line, the Histogram equals to zero.
    The process described above is the complete calculation. According to the information sources or analytic tools you get to, you can find the process of MACD calculation without the final step (MACD histogram) or the MACD can be displayed
    as the difference EMA12 - EMA26.
    As you can see on the picture bellow, the MACD values are displayed in the form of Histogram. (This histogram just displayes the difference EMA12 EMA26).


    Description of the picture: MACD is based on two moving averages EMA12 and EMA26. EMA12 is the green curve and EMA26 is the red one. When these averages meet, the histogram crosses the zero line upwards or downwards. In other words, this histogram just pictures the difference between both moving averages. There is no Trigger line displayed.
    You can see MACD values again, in the picture bellow. This time it is also with its trigger line, which is just an 5-days Moving average.




    The blue horizontal lines mark moments when MACD values crossed its Trigger line.
    How to use the MACD:

    There is many ways how to use the Moving Average Convergences and Divergences. Besides traders use to adapt it in many ways to comply with their trading systems. Here are 4 basic ways of using it:
    The positive and negative divergencesare a topic for a whole article. Positive divergences are made if the price graph formed lower low, but MACD refuses to sink lower. It formed Higher Low instead. It means that the bears aren't so strong now and a trend reversal can be expected very soon. Some nice divergences - positive and negative as well, are pictured in the image above. Take notice of the moment when the price graph reached Higher High, but the
    1. MACD formed just Lower High. It forecasted the trend reversal and a price decrease. You can also see the price graph forming Lower Low later, but MACD made just Higher Low. That predicted a trend reversal and Uptrend comming.
    2. MACD crossings. There is more ways of using it. E.g. some traders take into consideration every MACD/Trigger line crossing. If MACD crosses its Trigger line upwards, traders Buy. If it crosses downwards, they Sell. As such crossings are quite usual, some traders use a time filter - e.g. 3 days. If MACD crosses the Trigger line and remains in the zone for at least 3 days, they trade, should it crossed back within the time period, they avoided a loss trade. Other traders take into consideration just MACD/Trigger line crossings done above or bellow the zero line. If the MACD crossed its Trigger line upwards (in the zone bellow the Zero line), they go Long. If it crossed Trigger line downwards (above the Zero line), they go Short.
    3. MACD/Zero line crossings. The crossing means that the shorter Moving Average crossed the longer Moving Average - either Up or Down. I don't consider this being any special MACD signal. It is more like two moving averages trading system, not any special feature of MACD indicator.
    4. MACD Histogram evaluating (I mean MACD Histogram from the third step of construction). If the Histogram rises it means the market momentum gets stronger and the difference between MACD and its Trigger line extends. If the Histogram decreases, it means the momentum gets weaker and weaker so we can make use of it and predict Price reversals in advance.
    In the end: If the trader wants the MACD become more fllexible, he must choose shorter time periods for EMA construction e.g. 5-10-18. So he can get sooner signals to buy or sell, but there will be more of them given. It means more false signals, as well. It is appropriate to consider what kind ot market do we want to trade and select the MACD settings according to the market nature and historical tests.
    MACD is used to determine the long-term trend, too. If we want to do so, we can apply the MACD to weekly or monthly data. So we can get an idea about the long-term market direction and take trades just in line with it.
    If you are interested in a deeper study of this technical indicator and prefer ready to serve solutions, this may be of interest to you. There you can find all the available indicators in Excel file for download.




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  3. #2
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    its agreat topic thank you my bro , but look i can add some points Standard MACD is the 12-day Exponential Moving Average (EMA) less the 26-day EMA. Closing prices are used for these moving averages. A 9-day EMA of MACD is plotted along side to act as a signal line to identify turns in the indicator. The MACD-Histogram represents the difference between MACD and its 9-day EMA, the signal line. The histogram is positive when MACD is above its 9-day EMA and negative when MACD is below its 9-day EMA.

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    In Sep 6, 2010: USDCHF FORECAST The USDCHF slipped above 1.0220 on Friday but closed lower at 1.0170. The bias remains neutral in nearest term. Price still move inside the minor bullish channel indicating we are still in upside correction phase but only a break above the trend line resistance (red) could seriously threat the major bearish outlook. On the downside we need a clear break below 1.0130 and the minor bullish channel to continue the downside pressure testing 1.0030
    kimoking

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    this is the most awesome indicator and even newbies can be easily understand its signals and it is easily to know the bearish and bullish trend using this indicator.In addition to this.macd is commonly used in combination with other indicators as with RSI and many more other.the thing about about macd is that its signals are very strong and much much easy to understand

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    Quote Originally Posted by haythemkr View Post
    MACD was created by Gerald Appel. MACD belongs to the Momentum Oscillators, that indicate the dynamics and strength of the current trend and oscillates around the zero line in both directions.

    MACD is an abbreviation for Moving Average Covergence Divergence. As the title says, it is all about approaching and retreating of moving averages (convergences and divergences).
    MACD consists of three moving averages. Their usual settings are to 9, 12 and 26 time periods. The periods mentioned are just recommended but every trader can set the MACD according to his own preferences.
    The construction of MACD is quite easy despite hard enough to explain. The calculation is as follows:
    1. MA12 – MA26 (subtract the 26-day EMA from the 12-day EMA). So we get quite new values called just MACD.
    2. Calculate the MA9 (9-days moving average) of the MACD values. This moving average is called a Trigger line.
    3. In 1986 Thomas Aspray introduced so called MACD histogram in addition. MACD – Trigger line = MACD Histogram. MACD Histogram is the result of subtracting the Trigger line from the MACD values. Histogram is just a graphic expression of the relations between MACD and its Trigger line. Should the MACD be higher than Trigger line, MACD Histogram is positive. Should it be lower, the Histogram would be negative. When MACD gets the same values as its Trigger line, the Histogram equals to zero.
    The process described above is the complete calculation. According to the information sources or analytic tools you get to, you can find the process of MACD calculation without the final step (MACD histogram) or the MACD can be displayed
    as the difference EMA12 - EMA26.
    As you can see on the picture bellow, the MACD values are displayed in the form of Histogram. (This histogram just displayes the difference EMA12 – EMA26).


    Description of the picture: MACD is based on two moving averages EMA12 and EMA26. EMA12 is the green curve and EMA26 is the red one. When these averages meet, the histogram crosses the zero line upwards or downwards. In other words, this histogram just pictures the difference between both moving averages. There is no Trigger line displayed.
    You can see MACD values again, in the picture bellow. This time it is also with its trigger line, which is just an 5-days Moving average.




    The blue horizontal lines mark moments when MACD values crossed its Trigger line.
    How to use the MACD:

    There is many ways how to use the Moving Average Convergences and Divergences. Besides traders use to adapt it in many ways to comply with their trading systems. Here are 4 basic ways of using it:
    The positive and negative divergencesare a topic for a whole article. Positive divergences are made if the price graph formed lower low, but MACD refuses to sink lower. It formed Higher Low instead. It means that the bears aren't so strong now and a trend reversal can be expected very soon. Some nice divergences - positive and negative as well, are pictured in the image above. Take notice of the moment when the price graph reached Higher High, but the
    1. MACD formed just Lower High. It forecasted the trend reversal and a price decrease. You can also see the price graph forming Lower Low later, but MACD made just Higher Low. That predicted a trend reversal and Uptrend comming.
    2. MACD crossings. There is more ways of using it. E.g. some traders take into consideration every MACD/Trigger line crossing. If MACD crosses its Trigger line upwards, traders Buy. If it crosses downwards, they Sell. As such crossings are quite usual, some traders use a time filter - e.g. 3 days. If MACD crosses the Trigger line and remains in the zone for at least 3 days, they trade, should it crossed back within the time period, they avoided a loss trade. Other traders take into consideration just MACD/Trigger line crossings done above or bellow the zero line. If the MACD crossed its Trigger line upwards (in the zone bellow the Zero line), they go Long. If it crossed Trigger line downwards (above the Zero line), they go Short.
    3. MACD/Zero line crossings. The crossing means that the shorter Moving Average crossed the longer Moving Average - either Up or Down. I don't consider this being any special MACD signal. It is more like two moving averages trading system, not any special feature of MACD indicator.
    4. MACD Histogram evaluating (I mean MACD Histogram from the third step of construction). If the Histogram rises it means the market momentum gets stronger and the difference between MACD and its Trigger line extends. If the Histogram decreases, it means the momentum gets weaker and weaker so we can make use of it and predict Price reversals in advance.
    In the end: If the trader wants the MACD become more fllexible, he must choose shorter time periods for EMA construction e.g. 5-10-18. So he can get sooner signals to buy or sell, but there will be more of them given. It means more false signals, as well. It is appropriate to consider what kind ot market do we want to trade and select the MACD settings according to the market nature and historical tests.
    MACD is used to determine the long-term trend, too. If we want to do so, we can apply the MACD to weekly or monthly data. So we can get an idea about the long-term market direction and take trades just in line with it.
    If you are interested in a deeper study of this technical indicator and prefer ready to serve solutions, this may be of interest to you. There you can find all the available indicators in Excel file for download.








    I use this indicators in my daily trading I have rarely faced a big loss using this indicator and this indicators is also good for scalping.I use this indicator for scalping.And also in daily short trades it s good to estimate the bullish or bearish trend of the market and I usually get good profit using this.I usually make my analysis by just using 1 hour chart and using this indicator.and my own analysis 70% becomes successful.this indicator in combination with rsi also produces good results

  7. #6
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    The the first times i used the MACD was not easy for me, and i used it with the same mindset for over a year with no tangible results, but when i realize my fault, i know that i lack the wisdom of trading the indicator, that was the fault.

    After, the whole thing, i realized that the usage of the MACD is in the MACD histogram, the histogram is very functional than the lines that runs up and down through the zero line, Try this , and you will see the more value of it.

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    Thanks for the sharing of great post about MACD and it is quite helpful in learning how t works and how can we make profit with it. MACD is not an ordinary indicator and you can use it to success even if you are newbie.

    MACD is mostly used with conjunction of RSI, these two can give you quality indications of the market and will make sure that you are in right spot of learning and earning zone. Your trades will get better than before.

    But always make sure that you don't use MACD alone, make it work in combination.

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    @falcon
    Well, there's no reliable indicators as all of the indicators are accurate in giving the indication of the market. But this will not give us the next movements because it calculate the current and previous trades of the market. But I often use of the MACD in my scalping strategy for the reason that it's actually good in doing the simple rule of the cross over and we can also match it with another indicator to have better analysis.

    I think mostly newbie traders have used this because of the simple strategy and simple rule being used here and that said it's the most easy to understand Forex indicators and that we can have use it also in long term with just different setup but same rule.

  10. #9
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    Quote Originally Posted by riddick09 View Post
    @falcon
    Well, there's no reliable indicators as all of the indicators are accurate in giving the indication of the market. But this will not give us the next movements because it calculate the current and previous trades of the market. But I often use of the MACD in my scalping strategy for the reason that it's actually good in doing the simple rule of the cross over and we can also match it with another indicator to have better analysis.

    I think mostly newbie traders have used this because of the simple strategy and simple rule being used here and that said it's the most easy to understand Forex indicators and that we can have use it also in long term with just different setup but same rule.
    Its will always depends on the indicators that you are using. This thread is about MACD and I guess its already explained the main function of MACD and its accuracy is base on actual and current situation. So its only going to forecast the probability of the next trend. Its like weather reporting. Weatherman just base all their forecast on data at hand. And its going to update and keep on updating as time moves.

    That's why when we are trading we must make analysis before, during and after our trade. In this way we can monitor our trading if we do trade more accurately or shabby. I do hope that in the long run we know how to use different type of indicators to make sure we have much better accuracy in doing analysis and not make use more confuse.

  11. #10
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    first of all i would like to say thanks to you that you share us the MACD information and study material . which is very good for the trader to know about the MACD . there are many trader who does not about the Elliott wave. the Elliott wave is the major part of the forex trading . so in this way the learning about the Elliott wave this is so hard and it is also very difficult to understand the Elliot Wave . so if we use the MACD then we are aware from the Elliott Wave.

    The main feature of the MACD is that we easily predict the lower high and higher high . which is the most power thing in the forex trading . so the MACD gives here a very big helps to predict the market properly. and know thew higher high and lower low.
    NEVER TRY TO RUN LIKE A HORSE IN FOREX TRADING JUST WALK CAUSE WHEN YOU FALL THEN YOU WILL NEVER FEEL BIG PAIN

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