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Moving Average Convergence/Divergence (MACD) MT4 Stock Indexes Indicator and Indices Trading Signals

The Moving Average Convergence/Divergence (MACD) indicator was developed by Gerald Appel.


The Moving Average Convergence/Divergence (MACD) is one of the simplest, most reliable, and most commonly used indicators available. The MACD is a momentum MT4 Indices Indicator with some trend-following characteristics. The most popular construction of the MACD first calculates the difference between two moving averages and plots that as the "Fast" line; A second "Signal" (trigger) line is then calculated from the resulting "Fast" line and drawn in the same frame as the "Fast" line. The "standard" MACD values for the "Fast" line are a 12-period exponential moving average and a 26-period exponential moving average and a 9-period exponential moving average for the "Signal" line.


Interpretation

The MACD is widely used as a trend-following indicator and tends to work most effectively when measuring wide-swinging market movements. There are three basic techniques for using the MACD to generate stock indices signals.


MACD Crossovers:

1. Fast line/Signal line Crossover: A buy stock indices signal occurs when the Fast line crosses above the Signal line and a sell stock indices signal occurs when the Fast line crosses below the Signal line.


2. Fast line / Zero-Level Crossover: When the Fast line crosses above zero a buy stock indices signal is given. Alternatively, when the Fast line crosses below zero a sell stock indices signal is given.


MACD Divergence:

Looking for divergences between the MACD and stock indexes price can prove to be very effective in identifying potential reversal and/or indices trend continuation points in stock indexes price movement. There are several types of divergences:


Classic Divergence (Regular Divergence)


  • Bullish Divergence = Lower lows in stock indexes price and higher lows in the MACD

  • Bearish Divergence = Higher highs in stock indexes price and lower highs in the MACD


Hidden Divergence (Reverse, Continuation, Indices Trend Divergence)


  • Bullish Divergence = Lower lows in MACD and higher lows in indices price

  • Bearish Divergence = Higher highs in MACD and lower highs in indices price


MACD Overbought/Oversold Conditions:


The MACD can be used to identify potential overbought and oversold conditions in stock indexes price movements. These conditions are generated by comparing the distance between the shorter moving average and the longer moving average; if the shorter moving average separates dramatically from the longer moving average it may be an indication that stock indexes price is over-extending and will soon return to more realistic levels.


Implementation

The indices price, periods, and MA type for each of the moving averages (including the Signal line) have been parameterized to allow the user full customization of the MACD indicator. The Fast line is drawn as a solid blue line. The Signal line is drawn as a solid red line. A green Histogram draw that represents the difference between the Fast line and the Signal line has also been included to make identifying their crossover points easier.


Moving Average Convergence/Divergence (MACD)


MACD

 

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