What is the MACD technical indicator?
To operate with the MACD indicator we can follow different trading strategies. As we have said in other articles, in intraday trading it is a very effective indicator, because the longer the time frame, the more we will notice the lag because we are working with moving averages. Among the most used products for this type of operation are futures, stocks and Forex, which allow leverage (with the risks involved) and in intraday trading operations market commissions are usually more competitive. The most common MACD trading strategies are:
Line crossing strategy: buy when the “delta” cuts above the “signal” at the price it crosses and sell when the “delta” cuts below the “signal” at the price it indicates. In other words, buy when the Histogram is positive and sell when it becomes negative.
- Zero zone strategy: Buy when the delta line enters the positive zone.
- Divergence strategy: In the first chart we can see a convergence/divergence, which is nothing more than finding two lows in the MACD indicator that are divergent with the lows of the price. These divergences show us trend changes. The example shows a bullish divergence.
The strategy of divergences with the MACD indicator in trading is to analyze and compare the distance of the closes when two relative lows or two relative highs occur. The MACD indicator shows us if the price falls/rises with more or less intensity, making a minimum/maximum and then bounces, and later falls again. This gives us good trading signals.
For example, if we see that the futures contract of a stock, Forex currency pair or index falls a lot but without much distance between closes, the MACD indicator will pick up a slight fall, later bounces and then falls again with less intensity, but the closes are further apart making the MACD indicator fall much more than in the previous fall, therefore there is a divergence that the price will tend to correct:
Very simple and highly flexible trading strategy. We can use it with different currency pairs and in different time frames. We can trade forex by adjusting the MACD indicator from default to other settings to get better performance with different currency pairs and time frames. It offers many buy and sell signals in trend, both using moving averages with the MACD indicator, as well as divergences. It is one of the most popular and widely used indicators in Forex trading. In addition, it does not require a very complex analysis, as it is a very simple strategy that offers us an entry signal in short and long.