How to use this indicator in Forex trading?

Successful work on Forex is impossible without thoughtful analysis of incoming data. It isn't straightforward, so traders should use particular trading indicators. Chief among them is the MACD. It applies to various trading strategies used by professionals and beginners.

General information

MACD is a reasonably old indicator. It was created back in 1970 by the well-known, at that time, financial analyst D. Appel. The purpose of developing this assistant was to create a universal trading tool with the positive qualities of all its competitors and a minimum of disadvantages. The goal was achieved, and traders worldwide got the opportunity to implement the MACD.

The indicator functions quite simply. It simultaneously evaluates the market with two moving averages (MA). This feature allows you to predict the behavior of the price chart in the short and long term. Reduction MA indicates a price equilibrium to users when opening and closing deals are not advisable. At the same time, the reverse process suggests an increase in the number of asset sale/purchase transactions. This period is optimal for performing active actions.

Settings

For the MACD to effectively cope with its task and help the trader to perform various actions on the exchange, you need to set it up correctly. To do this, select suitable values ​​for several parameters depending on individual needs and the current market situation.

Custom metrics:

• slow MA period
• fast MA period
• signal MA period
• settlement price

When choosing settings, be sure to consider the option of trading. If reduced, the optimal periods will be 26, 12, and 9 (fast, slow, signal). The price in this situation will be the closing value of the candle. For trading for an increase, periods of 17, 8, and 9 are set. This option of settings is standard. It was recommended by the developer of the trading instrument and was considered the only correct one for a long time. Today, professional traders independently choose the appropriate periods. This is done based on many factors. At the same time, beginners are advised to set standard values ​​\u200b\u200band change them until they fully understand this issue.

In the settings, users also select the timeframe. When using MACD, it can be almost anything, but H1 (hourly period) and higher is considered the best option.

Trading features

The MACD is a valuable tool to help traders. However, for even greater efficiency, experts advise using it with other assistants (for example, with the MA indicator). In both cases, the operation of the indicator will be approximately the same.

Options for interpreting indicator data:

1. MA crossing. In most strategies, such an event is the best moment to start trading. If the intersection occurs when the histogram moves down, then the best option would be to sell existing assets and buy up.
2. I am entering the signal line. If this event occurs, the probability of further movement of the chart in a given direction is relatively high. Because of this, it would be advisable to acquire assets if the intersection occurs from the bottom-up and sell from the top-down.
3. Divergence. It is called the departure of lines from the zero mark. In most cases, such an event is accompanied by an increase in the trend, which indicates that the chart is expected to reverse soon.
4. Convergence. This term is the approach of lines with a strip with a zero mark. Most often, this phenomenon is observed before the chart reversal. However, the probability of such an outcome is much lower than with divergence.

Operating recommendations

The MACD is an easy-to-use indicator, but even it has hidden features. To learn about them, you need to read the recommendations of experts that are important for the correct operation of the trading tool.

Helpful hints:

1. The critical problem of MACD is the large number of false signals. To reduce the activity of their issuance, you need to use additional trading tools. They will help confirm or refute the correctness of the hints given.
2. MACD will be helpful if the user adheres to a pre-selected trading strategy. Therefore, it is essential not to commit rash actions that can lead to significant financial losses. In addition, it is necessary to correlate possible risks and profits correctly.
3. MACD is ineffective when using small timeframes. In this regard, using this tool for scalping is not recommended. At the same time, the indicator will be helpful in timeframes starting from H1.
4. When working with the MACD, you should be extremely careful in a situation with a formed trend. Even a pronounced divergence repeated several times can become a false signal.
5. Seeing divergence at the baseline is a significant exception to the rule. In such a situation, the probability of a sharp turn in the chart will be minimal, but the market will face an inevitable correction, after which the trend will strengthen.

MACD is a classic indicator that almost all traders know. It allows you to choose the optimal time to start trading and a convenient moment to close the transaction. To skillfully use this trading tool, you need to know all its features, the nuances of selecting parameters, and the optimal actions for a particular strategy. Having this information, it will be possible to respond to any changes and achieve a good income correctly.