In our last Metatrader 4 tip, we showed you how to use the Forex Indicator MA (Moving Average) on Metatrader 4. Today, we will focus on How to Use the MACD indicator.
In 1979 Gerald Appel, a professional money manager, created one of the most used technical analysis indicators today. The MACD, and MACD-Histogram, are essential trading tools by many traders. Investors and money managers alike use them for charting, on major financial websites, and in technical analysis software packages.
The MACD is known as a trend-following momentum indicator, which as the name indicates, means traders use it to try and take advantage of the trends of moving averages in the financial markets.
The MACD indicator displays the relationship between 2 moving averages (MAs), by subtracting the long-term EMA (26 periods) from the short-term EMA (12 periods). An exponential moving average (EMA) is a type of moving average that places a greater weight and significance on the most recent data points.
The technical analysis Forex Indicator, MACD (Moving Average Convergence/Divergence) allows us to identify possible entry points on an oscillating situation.
Related: How to Use MACD for divergences
How to Add the Forex Indicator MACD on Metatrader 4
The first step is to look for the navigator window in order to add indicators. Once there, go to Indicators > Oscillators > MACD
The parameters for this indicator are:
Fast EMA: Fast Moving Average 12 periods here.
Slow EMA: Slow Moving Average, 26 periods here.
The MACD line is calculated by subtracting the value of the Slow MA from the Fast MA and taking 9 periods in this example.
Apply to: It’s always applied to the candlelight CLOSE.
MACD crossing above zero is considered bullish, while crossing below zero is bearish. Secondly, when MACD turns up from below zero it is considered bullish. When it turns down from above zero it is considered bearish.
During trading ranges the MACD will whipsaw, with the fast line crossing back and forth across the signal line. Users of the MACD generally avoid trading in this situation or close positions to reduce volatility within the portfolio.
Divergence between the MACD and the price action is a stronger signal when it confirms the crossover signals.