Tuesday, 9 February 2010

How to use MACD Indicator


Making Better Forex Trades By Using A MACD Indicator

You know how to make better forex trades by using an MACD Indicator? This is quite important because it can help you strengthen the success rate of your forex trading strategy.

MACD is an acronym for Moving Average Convergence Divergence and it can help you determine which trades are more likely to result in a profitable outcome and which trades you should be avoiding or trading short.
When trading foreign currencies, its important to realize that the market can be quite volatile. This can mean a trade that might have shown signals of being profitable a few hours ago can turn suddenly into a downward spiral.
Success in the Forex market depends on using strategies and tools which help you to minimize losses and maximize the profitability if your trades. A MACD indicator helps you to track upwards trends in currency prices in real time, as well as spotting when a currency has peaked and is headed downwards.

How Do MACD Indicators Work? - The MACD is composed of a few different moving average indicators, each of which is pretty straightforward. One is the signal line (also known as the water line). This shows you the exponential moving average (EMA, for short) drawn from closing prices over the last nine days of trading in the currency market.

The upward or downward trend of a given currency are based on two different EMAs. There is a 12 day EMA as well as a 26 day EMA; taken together, these figures give you a better picture of the movements of this currency.
The MACD line may be above or below this EMA waterline. Based on where the EMA line falls, it indicates whether the currency you`re looking at is on the upswing or headed in the other direction.

Using the MACD Indicator in Your Forex Trades - Once you learn how to read the charts and come to an understanding of what the MACD`s movements mean you will be able to make better forex trades more easily. As any experienced Forex trader can tell you, knowing the trends in the foreign currency exchange marketmakes all the difference. Thanks to the one and four hour charts your MACD indicator will give you, you`ll be able to see the prevailing trends in the market and take advantage of them.

By learning to watch both sets of charts you should be able to pin point which currencies are trending upwards and which are trending down. When both the 4 hour and the 1 hour MACDs are trending up your chances of entering a profitable trade are more likely.

Before making a trade, it`s recommended to have a look at how the MACD indicator is moving on your hourly chart. A MACD indicator above the waterline means you have the best chance of making a trade which will work well for you by trading long on this currency.

Of course its important to recognize that no single indicator will give you accurate trading results every time. This particular charting system works best when used in conjunction with other signal indicator software and tools as well. However if you do choose to use it on its own to monitor the movements of particular currencies then it is possible to use the MACD indicator to give you a higher chance of trading profitably.

If you want to be as successful as you possibly can as a Forex trader, then a MACD indicator is one tool which you can`t afford to be without. It`s a wise investment in your trading career.

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