MACD Basics

MA indicator sets the trend by smoothing the daily price fluctuations. Gerald Appel, an analyst and financier from New York built a complex indicator. The method of convergence / divergence of the average price movement in short MACD consists of not one but three exponential MA medium. The chart indicators look like two lines crossing which gives commercial signal for buying and selling.
Course Schedule EYR / USD H4 (chart 4 hours) and MACD indicator shown in Figure 3.1 in separate windows. The price chart is shown in the upper window in the form of bars, and the MACD indicator at the bottom, in the form of two lines. The line of MACD indicator is presented in the form of light blue bars, and signal lines in the form of a thick red line.

MACD indicator consists of two lines: in the form of bars, called the MACD line and small intestine, called the “Signal”. There are other variantiina drawing, but more importantly both lines are clearly distinguishable. MACD line is calculated as the difference of two other exponential average – one is faster, which is subtracted from the other, which is slower. In this case, the concept of a more rapid is consumed in the sense that usrednenieto is performed for a small number of days, and slower, respectively, for a greater number of days. Recently quick line taken 12 – day EMA and slow to 26 – day EMA. These values, received the most popular are included in the program package by default. User (trader) can very easily change them depending on the objectives pursued. On the resulting line MACD is performed another type averaging EMA, which is usually 9 – daily. It aims to further “flatten” the line MACD. This new line is called the “Signal”. From the calculation of the two lines shows that the MACD line is that reacts more quickly to price changes and signal slower.

To see more clearly the differences between the two indicators EMA is plotted indicator MACD. Now it is clear why he is called the method of convergence / divergence of the average price movement. Since the MACD line consists of points with much lower values ​​of these prices, it will not be able to see the chart of prices and their scale. Therefore, it is not plotted on the chart and in a separate window, a separate schedule with a separate zero axis at an appropriate scale and of course synchronized with prices.
When the MACD line is above the zero axis and grow, that means increasing the pace (speed) of rising prices – the bull market is rapidly gaining momentum. When the MACD line reaches the top and begins to move down, it means that the bull market began to change slower. Crossing the zero line of the MACD line means that it has begun to form a bearish market. The movement of the MACD line in a negative direction is a sign that the bear market is developing with ever greater pace. Reaching negative peak and reversal of the MACD line towards the zero line means that the bear market is gradually losing strength. Crossing the zero line from below signals a shift in the market by the sword in bullish phase. In this case, it is clear that for us are interesting positive and negative peaks of the MACD. First, because the manner of calculating the MACD suggests a delay and secondly, what is more important, because we want to have a preliminary information that the forthcoming change in trend, while crossing the zero line of MACD is that this change has already occurred.
To be able to register more clearly these peaks is calculated 9-day signal line, which is slower than the MACD. Crossing the signal line of MACD line exudes valid signals for buying and selling. As mentioned earlier, these signals get after some delay because we have to travel a certain number of days for calculation of EMA. So that we more finely define the moment of opening and closing of trade positions will calculate further another line – MACD- histogram.