Forex trading Indicator Evaluation
The MACD is a forex indicator that is made up of 2 moving averages. Its actual name is the Moving Average Convergence Divergence indicator. This indicator is one of the more recognizable tools used in the forex trading business.
There are two primary uses of using the MACD indicator, trend identification along with market momentum. This offers the trader two important pieces of data simply at a glance. The indicator is created by using a 12 period (EMA) and subtracting its 26 period exponential moving average.
A line across the center is also shaped and is assigned the value zero. Another line produced by a nine period line is also plotted on the indicator window. The nine period Macd serves function as the signal line.
When the indicator line is above zero, this tells the trader that the 12 EMA is trading above the 26 EMA. The 12 ema crosses below the 26 ema should the macd trade under the center line. This indicator is actually just a cross over technique based on moving averages. Should the indicator trade over the center line, the markets are viewed as possessing bullish momentum.
If the indicator trades under the center line, this is an indication that the markets are bearish. As a extra confirmation of whether the markets are bullish or bearish, the signal line is used. So we are keeping an eye on two cross over movements. A cross above the center line in addition to a cross over the 9 period MACD signal line.
There is an extra tool that can be utilized with the double cross over. The histogram is what it is called. Should it expand over the zero value, the market is bullish and should it expand beneath zero, the markets are bearish. This is just an added confirmation signal for the forex trader.
The MACD is a trend indicator which means traders should steer clear of using it when the market is side trending. Typically, if the indicator is trading close to the zero line, this is an sign the market is side trending.
If for some reason, the indicator begins to trend in the opposite direction of price movement, this may be a sign that the markets will go through a reversal soon.
Article Source: FxTradingStock.com
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For Should you need a detailed tutorial on macd in addition to other major Forex indicators, please Click Here or visit the authors forex portal at www.i-forex-trading.com
by: Roman Veaila
Total views: 60
Word Count: 386
Date: Sat, 20 Feb 2010
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