Forex Strategy - The way the MACD Indicator Can help you save Anxiety
Regardless of your Forex strategy, have you ever entered trades and shortly afterwards wished you hadn't? The data that follows will hopefully cut down greatly around the number of trades that induce you anxiety! Covergence
The MACD (Moving Average Convergence Divergence) indicator can add a diploma of certainty for your Forex strategy.
As with any indicator, it is too risky to penetrate trades on this signal alone. However, once we will see, used with caution on higher periods, it can help confirm you're going inside the right direction understanding that your trade is higher probability.
Taking MACD Apart
Consider MACD apart and describe it's component parts.
The default MACD on most charting packages sets 2 EMA's (Exponential Moving Averages) at 26 and 12 days.
This can be represented by way of a colored line (color varies according to charting package) which crosses a different colored 9 EMA often termed the trigger line.
When MACD (the 12/26 EMA) crosses above the trigger line (9 EMA) upward momentum is indicated and the other way round.
A center line, or zero line, categorised as the lake line is also shown inside the MACD indicator. When MACD is above the water line an upward trend is indicated, if it is underneath the conduit, a downward trend is indicated.
MACD comes with a histogram, small vertical lines that appear above or below the zero line, similar to mountains and valleys to look at. Divergence
MACD is a lagging indicator which follows price action.
The histogram is definitely an indicator of MACD. So watching the histogram can provide you with an earlier indication of where MACD goes. The peak of the histogram could be a good momentum indicator.
Using MACD As A Safety Indicator
How can you use MACD to your benefit?
If you wish to be very cautious in your Forex strategy, going just for high probability trades, then take note of MACD about the 4 hour and One hour charts.
Some traders will simply enter a trade if the 4 hour and One hour MACD's 're going in the same direction. This can mean much less trades but the ones you do take are likely to be profitable. (Agreement of these two MACD's is used along with other indicators, not on it's own.)
MACD on the One hour chart is particularly powerful. If you want to stay out of trouble and prevent trades you might later regret, NEVER trade up against the direction with the An hour MACD. To complete otherwise just isn't necessarily foolhardy once you learn your work.
And also for the newer, less experienced trader, only trading long when MACD has crossed up, or short when MACD has crossed upon the hourly chart whenever your other favorite indicators fall into line, will make for a higher success rate along with your Forex strategy. It will save much anxiety and heartache!