MACD -Moving Average Convergence and Divergence
MACD “Moving Average Convergence and Divergence” oscillator is probably the most simplest and the most efficient forex indicators accessible. The MACD indicator is mainly used to trade the trends and must not be used when the market is range bound. Signals are used whenever MACD crosses its line, computed for 9 days, 12 days, 26 days exponential MA of MACD.
MACD: (12-day EMA – 26-day time EMA)
Line of signal: 9-day EMA of MACD Series
Histogram of MACD: MACD Line – Line of signal
Convergence occurs when the moving averages move in the direction of each other. Divergence takes place when moving averages actually move apart from one another. The smaller moving average i.e. 12 days is quicker and in charge of most MACD actions.
The long moving average (26 days’ time) is reduced and much less reactive to price alterations in the underlying securities.
A bullish crossover takes place when the MACD turns up and crosses above the line of signal. A bearish crossover happens when the MACD turns straight down and crosses beneath the line of signal.