Forex Strategy - The MACD Indicator Can Save You

Trading currencies on the foreign exchange market, commonly known as forex, can be a difficult process that is hard to understand. It is important to follow the trends of the values of currency in order to make predictions about where the currencies are headed in the future. This is the only way to reliably make a profit over time by trading on the foreign exchange. In order to do this, it is important to have indicators which let you know when it is a good idea to buy or sell specific currencies. One of the most important indicators is referred to as the Moving Average Convergence Divergence indicator, or the MACD indicator.

The MACD indicator for a specific indicator is calculated by taking the short term exponential moving average (EMA) of a currency, and subtracting the long term EMA from it. This results in the MACD. An even shorter term EMA is then calculated from the MACD, which is plotted over top of the MACD and is referred to as the signal line.

In order to use the MACD to make good financial decisions, it is important to understand how to use it properly as an indicator. The most important thing to consider is when the MACD and the signal line cross one another. This means that the momentum of a currency is shifting. If the MACD crosses from below to above the signal line, it means that the momentum of the currency is shifting in a positive direction. More and more people are investing in the currency, causing it to rise in value, which is referred to as a bull market. This is usually interpreted as a signal to buy. If, on the other hand, the MACD crosses from above to below the signal line, then the value of a currency is losing momentum in a situation called a bear market. This is typically considered a good time to sell a currency.

If the MACD and the signal line separate from one another, this is not necessarily an indicator either to buy or to sell, but it does mean that the trend of the currency is changing.

If the MACD takes a sudden and drastic turn, this means that the short term average is pulling away from the long term average. This usually means that too many people have invested in a currency, and it is likely to swing back to normal values within a short period of time.

Finally, the position of the MACD in relation to zero is important. Above zero means the currency is rising, below zero means its falling.