Hi, traders!
Today we gonna start the tutorial “Trading from scratch”. These short but very useful articles are intended for beginners who’s just started their way in trading. We hope you’ll enjoy.
Today’s article will give the full understanding of one the most popular, easy and very useful indicator - MAC. Moreover, we’ll show you how to apply it efficiently.
MACD (Moving Average Convergence/Divergence) is a trend indicator that shows the trend and its momentum. It consists of two lines: MACD line and signal line. Both of them are EMA with different periods. We got MACD line subtracting from EMA with less period (fast) EMA with longer period (slow). The signal line is MACD line smoothed by the very short EMA.
How to trade with MACD?
Divergence
The first very powerful signal is divergence. Divergence means the difference between slope of the trend line on chart and indicator. To learn about it properly you can read our Divergences Cheat Sheet.
Catching divergences is a good signal to buy or sell. As you can see on the screen, the first time we got bearish regular divergence. Thus, we are going to short. Then we can see bullish hidden divergence and it’s a good chance to execute a long position.
NOTE
We can draw divergence lines both on MACD line and histogram.
Today we gonna start the tutorial “Trading from scratch”. These short but very useful articles are intended for beginners who’s just started their way in trading. We hope you’ll enjoy.
Today’s article will give the full understanding of one the most popular, easy and very useful indicator - MAC. Moreover, we’ll show you how to apply it efficiently.
MACD (Moving Average Convergence/Divergence) is a trend indicator that shows the trend and its momentum. It consists of two lines: MACD line and signal line. Both of them are EMA with different periods. We got MACD line subtracting from EMA with less period (fast) EMA with longer period (slow). The signal line is MACD line smoothed by the very short EMA.
How to trade with MACD?
Divergence
The first very powerful signal is divergence. Divergence means the difference between slope of the trend line on chart and indicator. To learn about it properly you can read our Divergences Cheat Sheet.
Catching divergences is a good signal to buy or sell. As you can see on the screen, the first time we got bearish regular divergence. Thus, we are going to short. Then we can see bullish hidden divergence and it’s a good chance to execute a long position.
NOTE
We can draw divergence lines both on MACD line and histogram.
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Crossovers
It’s another important signal to confirm entering in short or long position. Have a look on oscillator’s plot again. When the MACD crosses below the signal line and it happens above zero line, it’s a great opportunity to sell. Whereas MACD crosses the signal line above and it happens below zero line, it’s a good idea to buy.
It’s another important signal to confirm entering in short or long position. Have a look on oscillator’s plot again. When the MACD crosses below the signal line and it happens above zero line, it’s a great opportunity to sell. Whereas MACD crosses the signal line above and it happens below zero line, it’s a good idea to buy.
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Conclusion
MACD is extremly useful for traders, but it's has some cons. When you use MACD you shouldn't forget that it's lagging indicator. Thus, we can't be completly confident in its signals. That's why we use it in conjunction with other indicators which we'll demonstrate you in our next articles.
DISCLAMER: Information is provided only for educational purposes. Do your own study before taking any actions or decisions.
MACD is extremly useful for traders, but it's has some cons. When you use MACD you shouldn't forget that it's lagging indicator. Thus, we can't be completly confident in its signals. That's why we use it in conjunction with other indicators which we'll demonstrate you in our next articles.
DISCLAMER: Information is provided only for educational purposes. Do your own study before taking any actions or decisions.
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