As we explained in our last MT4 tip. The MACD (Moving Average Convergence/Divergence), is an indicator created in the late ’70s by Gerald Appel in order to check for trends by following the relationship between two moving averages. It’s used in the technical analysis of securities and helps traders recognize bullish and bearish momentums in order to plan their entry and exit points when there are divergences between the price and the MACD Indicator on Metatrader 4.
The MACD and average series are customarily displayed as continuous lines in a plot whose horizontal axis is time, whereas the divergence is shown as a histogram.
How to Use the MACD Indicator for Divergences on Metatrader 4:
When the MACD diverges from the security it may be an indication that an end to the current trend is soon to happen. A bullish divergence occurs when the Moving Average Convergence/Divergence indicator is making new highs while prices fail to reach new highs. A bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows. Both of these divergences are most significant when they occur at relatively overbought/oversold levels.
The parameters for this indicator are:
Fast EMA: Fast Moving Average 12 periods
Slow EMA: Slow Moving Average, 26 periods
MACD SMA: it’s the MACD line, calculated by subtracting the Slow MA value from the Fast MA and taking nine periods.
Apply to: It’s always applied to the candlestick CLOSE.
In this example, we can see a short-position entry point.
The MACD reaches the lowest maximums (that means, it goes down) and the price reaches the highest maximums (that is, it goes up). This could be a sign that the strength of the price movement is soon to be over. This divergence is known as Negative Divergence.
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