One of the indicators that get the most attention in the Forex market is the Moving Average Convergence Divergence (MACD). It is an oscillator that gives a buy-sell signal for the financial asset and allows you to see whether the relevant price is in the excessive buying or selling zone or not.
The MACD indicator, created towards the end of the 1970s, was influenced by the moving averages like most other indicators. It shows the relationship between the short term behavior of the asset price and the long term behavior of the asset price.
It was created by taking the difference between the averages with the help of using the 12-period exponential moving average for the short-term view and the 26-period exponential average in the long-term view.
One of the most critical elements to pay attention to regarding the MACD indicator is that it has the oscillator feature which helps us see both the trend expectation regarding the asset and the buying- selling areas. This means one indicator can serve in two categories (Trend & Oscillator).
In order to access the MACD indicator in the MetaTrader platform, you can respectively click on the tabs of Toolbar- Insert- Indicator and then Oscillator.
Before adding it to the platform, you can revise or make the figures of 12, 26, and 9 shared as a standard in line with how many averages of prices must be taken suitable to the financial asset that is to be traded or revise from the “Parameters” section whenever you’d like. However, in the training, such change won’t be made and the standard pattern will be followed. For example, these averages might be revised as 5, 13, and 9 for short term investors.
There are 2 colored sections in the graphic. These sections are the Green colored candles and red-colored signal lines (trigger). While the point subject to trade happens in line with the signal line, it also gives an extra advantage for us to see the candles as increasing or decreasing to be able to see the strength of the current signal.
The Positive Or Negative Condition of the MACD Indicator!
The most critical thing to pay attention to related to the MACS indicator while making a trade decision regarding the financial asset is to have a strategy where it is paid more attention to the appearance of NEGATIVE if below zero and POSITIVE if above zero. For SELL signals to appear in the positive area and the BUY signals to appear in the Negative area, you can follow the signal line (trigger) and the volatility of the candles in the indicator.
According to the MACD indicator, the strong, positive signal is the signal line (trigger) also making a movement above the level zero in addition to the MACD candles that go above level zero.
According to the MACD indicator, the strong, negative signal is the signal line (trigger) also making a movement below the level zero in addition to the MACD candles that go below level zero.
In the graph shared above, we can see that in the areas where we get the UP and DOWN signal, in the first vertical lines, the candles give the signal according to the level zero. However, the main signal gets clearer with the red colored signal line (trigger).
The most critical element to be paid attention to in the nature of SELL in the Positive area and BUY in the Negative area, meaning the moderate signal is to support trend reactions or trend changes to be supported with auxiliary tools.
For example, the height of the green-colored candles decreasing while it is above level zero in the graphic shared above and the red colored signal line’s (trigger) realizing a turn created an important advantage as the SELL signal. However, it shouldn’t be forgotten that this advantage is supported by the end of the blue-colored trend. This means, to be able to take a place in the moderate signal, the signal which means SELL in the positive area and BUY in the negative need the trend changes shared above.
MACD – Divergence!
The clash between the Oscillator indicator, which helps us to see the overbought and oversold zones, and the asset price come to the agenda sometimes.
This part in which it is taken into consideration as Positive or Negative, the main point to focus is the asset price. The related incompatibility removes the buy-sell signal until the price and indicator are compatible.
If the Oscillator indicators that help us to see the overbought and oversold zones are used on their own, the times of clash will affect the trade performance negatively. For this reason, no indicator should be used on their own.
When we analyze the graph above, we see that even though the green-colored candles create a downward pressure in the MACD indicator, the asset price continues in a positive direction. In such cases, to minimize the risks, it is important to wait until the part where the price is compatible with the indicator. Moreover, these kinds of clashes usually take place in strategies with moderate signals meaning the signal is SELL in the Positive area and BUY in the Negative area. For this reason, in order not to stay in the areas of a clash, there must be a strategy created with strong MACD signals. For that, a Negative scenario with the candle plus trigger line above level zero and a Positive scenario above level zero must be taken into account.