Nov 16

MACD Forex Trading Strategy

For forex traders, there is nothing that is sure but one: the price movements are so unpredictable that there is no way to continue trading confidently except by relying on trends. Prices can become unpredictable and future can be completely opaque, but bias is omnipresent in the market and bias determines the prevailing trends in the market. MACD (Moving Average Convergence Divergence) is a convenient indicator that can be used to identify moving averages that ultimately indicate trends. It doesn’t matter whether the trends are bullish or bearish. As long as the indicated trends are clear, trading activities can proceed confidently and success becomes more imminent.

How to Trade with MACD Forex Trading Strategy

MACD is based on the difference of two moving averages: faster moving average and slower moving average. Numbers are used to indicate both averages, with 12 and 26 for faster moving average and slower moving average respectively being the most common setting. A histogram representing the difference between the two moving averages is later added with 9 EMA period being the most common setting. This histogram, with its 9 EMA period line, is most essential in signaling a buy and a sell. For example, if MACD moves above the 9 EMA period, a buy might be signaled. Conversely, if MACD moves below the 9 EMA period, a sell is to be signaled. Different interpretations, however, might be used when using this indicator.

MACD Forex Trading Strategy

MACD Forex Trading Strategy

Final Notes

MACD should be used with circumspection, especially because this indicator may clue false signals when the market is trending strongly. The right time MACD will come into its best use is when placing stops instead of price. By using MACD to place stops, traders can avoid unnecessary losses and be still on their trade even if the trade initially goes against them.

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