- PPF Points
- 2,039
To use the MACD properly in the forex market, you should start by learning what it actually represents—it's not just some fancy lines on a chart, it’s a momentum indicator that assists you in indicating trend direction, strength, and possible reversals. MACD is the short form of “Moving Average Convergence Divergence,” having two lines, that is to say, the MACD line and the signal line, along with a histogram that shows the distance between them. The best technique to use the MACD indicator is to stay patient and wait for a crossover. A signal of a bullish trend will emerge when the MACD line passes through the signal line upward, and a crossing below will give bearish momentum. However, the confirmation of the signal through support and resistance levels or the price action model is the best way. Don’t just be blind to each crossover trade—if the market is in a bullish trend and then you see a bullish crossover near the support level, it is a much stronger confirmation than just applying the indicator's signal. Look at divergence, too—for example, if the market reaches a higher high but the MACD makes a lower high, take it as a hint that momentum is weak and so it’s a sign that the market might change direction. On higher time frames like the 1-hour, 4-hour, or daily charts, the MACD shows the best results as it removes fake signals which are very common in the small time frames. In contrast, it looks chaotic on any non-directional or sideways trends. Therefore, it is crucial to confirm first if the market is a trending one before relying on the MACD strategy too much. With the right application, MACD can be an effective tool. Still, it is most effective when it is used within a comprehensive trading plan.
