Use of Technical Indicators
Essentially, forex traders need to look for profits at every single opportunity and strong technical analytical abilities help the cause in this regard. One such most popular technical indicator is the Moving Average Convergence Divergence, the MACD. MACD uses Exponential Moving Averages for calculations and is a fairly well followed indicator.
Before we get on to the thick of this indicator, we must also understand that MACD has its own limitations and so is not very accurate in setting off signals for entry and exits for a trader.
How Is the MACD Chart Plotted?
MACD calculations are fairly simple as 26, 12 and 9 day Exponential Moving Averages- EMA- is used. For simplicity of explanation, we can say the the 26 day EMA is slower than the 12 day EMA. In the stock trading scenario, the prices used for EMA calculation are the closing prices but in a 24 hour market situation a price at a fixed certain time is taken which serves the purposes. The plotting of MACD is for the difference in value for the two EMAs against the 9 day EMA.
Trading With MACD and Histogram
Interpreting the MACD chart is fairly simple. The MACD, which is the difference in 26 and 12 day EMAs is plotted on top of the 9 day EMA. When the MACD line crosses over the 9 day EMA, this indicates a future rise in the price and at this time the histogram will be positive and will value above the mean 'zero' level. This is an indication for the discerning trader to go long on his or her positions. The reverse is the case when the MACD dips below the 9 day EMA triggering the fall in the price of the forex and indicating to close long positions either partly or fully. On the other hand, the same indicators can also be used for deciding on short positions. The same logics hold well for the purpose of going short but in a reverse sense.
In certain cases where the MACD histogram fails to make new Swing Highs or Swing Lows even when prices do, it is a significantly remarkable phenomenon. This is a fairly excellent identification for speculative trading as price reverses are to follow such phenomena which is an indication of divergence between price and momentum.
Traders following the MACD charts must bear in mind to identify the 'stops' and 'fakeouts' to avoid forcible entry or exits from their positions.
Essentially, forex traders need to look for profits at every single opportunity and strong technical analytical abilities help the cause in this regard. One such most popular technical indicator is the Moving Average Convergence Divergence, the MACD. MACD uses Exponential Moving Averages for calculations and is a fairly well followed indicator.
Before we get on to the thick of this indicator, we must also understand that MACD has its own limitations and so is not very accurate in setting off signals for entry and exits for a trader.
How Is the MACD Chart Plotted?
MACD calculations are fairly simple as 26, 12 and 9 day Exponential Moving Averages- EMA- is used. For simplicity of explanation, we can say the the 26 day EMA is slower than the 12 day EMA. In the stock trading scenario, the prices used for EMA calculation are the closing prices but in a 24 hour market situation a price at a fixed certain time is taken which serves the purposes. The plotting of MACD is for the difference in value for the two EMAs against the 9 day EMA.
Trading With MACD and Histogram
Interpreting the MACD chart is fairly simple. The MACD, which is the difference in 26 and 12 day EMAs is plotted on top of the 9 day EMA. When the MACD line crosses over the 9 day EMA, this indicates a future rise in the price and at this time the histogram will be positive and will value above the mean 'zero' level. This is an indication for the discerning trader to go long on his or her positions. The reverse is the case when the MACD dips below the 9 day EMA triggering the fall in the price of the forex and indicating to close long positions either partly or fully. On the other hand, the same indicators can also be used for deciding on short positions. The same logics hold well for the purpose of going short but in a reverse sense.
In certain cases where the MACD histogram fails to make new Swing Highs or Swing Lows even when prices do, it is a significantly remarkable phenomenon. This is a fairly excellent identification for speculative trading as price reverses are to follow such phenomena which is an indication of divergence between price and momentum.
Traders following the MACD charts must bear in mind to identify the 'stops' and 'fakeouts' to avoid forcible entry or exits from their positions.
