For example, traders can consider using the setting MACD 5,42,5. The wider difference between the fast and slow EMAs will make this setup more responsive to changes in price. The MACD 5,42,5 setting is displayed below:.
This is an option for those who want to use the MACD series only. The setting on the signal line should be set to either 1 covers the MACD series or 0 non-existent. When price is in an uptrend, the white line will be positively sloped. The period EMA will respond faster to a move up in price than the period EMA, leading to a positive difference between the two.
The way EMAs are weighted will favor the most recent data. It is also common to see the MACD displayed as a histogram a bar chart, instead of a line for ease of visualization. Charting software will usually give you the option of being able to change the color of positive and negative values for additional ease of use. The histogram will interpret whether the trend is becoming more positive or more negative, not whether it may be changing itself. The MACD is based on moving averages. Since moving averages accumulate past price data in accordance with the settings specifications, it is a lagging indicator by nature.
It is simply designed to track trend or momentum changes in a stock that might not easily be captured by looking at price alone. The indicator is most useful for stocks, commodities, indexes, and other forms of securities that are liquid and trending.
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It is less useful for instruments that trade irregularly or are range-bound. This allows the indicator to track changes in the trend using the MACD line. The signal line tracks changes in the MACD line itself. For those who may have studied calculus in the past, the MACD line is similar to the first derivative of price with respect to time.
Histogram — Indicators and Signals — TradingView
The signal line is similar to the second derivative of price with respect to time, or the first derivative of the MACD line with respect to time. Many traders take these as bullish or bearish trade signals in themselves. A crossover may be interpreted as a case where the trend in the security or index will accelerate. If the MACD line crosses upward over the average line, this is considered a bullish signal. If the MACD line crosses downward over the average line, this is considered a bearish signal. This is easily tracked by the MACD histogram. A bullish signal occurs when the histogram goes from negative to positive.
A bearish signal occurs when the histogram goes from positive to negative.
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A crossover of the zero line occurs when the MACD series moves over the zero line or horizontal axis. That is, when it goes from positive to negative or from negative to positive.
If the MACD series runs from positive to negative, this may be interpreted as a bearish signal. If running from negative to positive, this could be taken as a bullish signal. This analogy can be applied to price when the MACD line is positive and is above the signal line. This is a bullish sign. If the car slams on the breaks, its velocity is decreasing.
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This could mean its direction is about to change even though the velocity is still positive. This would be the equivalent to a signal line crossover but with the MACD line still being positive. Some traders might turn bearish on the trend at this juncture. This is a bearish sign. Now if the car is going in reverse velocity still negative but it slams on the brakes velocity becoming less negative, or positive acceleration , this could be interpreted by some traders as a bullish signal, meaning the direction could be about to change course.
Some traders only pay attention to acceleration — i. Some traders, on the other hand, will take a trade only when both velocity and acceleration are in sync. Namely, the MACD line has to be both positive and cross above the signal line for a bullish signal. Or the MACD line has to be both negative and crossed below the signal line for a bearish signal.
As aforementioned, the MACD line is very similar to the first derivative of price with respect to time. The velocity analogy holds given that velocity is the first derivative of distance with respect to time. The signal line is very similar to the second derivative of price with respect to time or the first derivative of the MACD line with respect to time.
The MACD builds upon this concept as it still incorporates a slow and fast line. However, it has a unique twist. Do you remember the setting mentioned above 12,26,9? For the slow line, it merely uses the value of the 9 EMA. To produce the bars, take note of the 9 EMA, which is considered the slow line.
MACD Histogram MetaTrader 4 Forex Indicator
Next, observe how the fast line goes up and down the slow line. Now that you understand how the MACD is produced, you can better understand how to trade with it. You can read more about the best MACD settings for intraday trading in our article. Please download Macd indicator mt4 two lines: macd mt4 2 lines download indicator. Metaquotes create this indicator, and it is a basic trading indicator. This version has nice colors.
You can edit in input :. Keep in mind that at the end of the day, the MACD is not a magic bullet. It is just a tool that will help you with your trading. This means that using this tool is up to you, and there is no right or wrong way of using this indicator.
Introduction
However, this article will show you the basic ways of trading the two MACD lines and other strategies. You use the fast and slow line crossovers as a signal for entries and exits. To exit, wait for the fast line to crossover towards the bottom side. The longer the bar, the more momentum the price has.
For example, if the current bar is longer than the previous bar and the previous bar is longer than the one that precedes it, you can say that the price is gaining momentum. This indicates that this momentum trend is likely to continue until it shows signs of weakness. If the opposite happens and the bar gets shorter and shorter, you can say the price momentum is weaker.
The easy way of understanding convergence and divergence is by referring to the price trend and the histogram.
MACD Histogram Indicator for MT4
For example, the price swing high of the short-term trend is going higher and higher. This is what is called a divergence. On the other hand, if the price swing lows of the short-term trend are going lower and lower, but the troughs of the histogram are going higher and higher, then this is described as convergence. The appearance of divergence and convergence may be a signal that a possible trend change is coming. Thus, you may want to take positions that are counter to the current short-term trend.