What is MACD?

MACD or the Moving Average Convergence Divergence is the indicator which let you know whether the currency price is in a high or a low trend. MACD Oscillator has two lines which are the MACD line and the signal line. The MACD line points out the difference between two Exponential Moving Averages (EMA) whereas the Signal line is an EMA of the MACD line itself. With the intention of displaying the buy or sell alarm, the Signal line is marked at the top of the MACD. Generally, a 26 days and 12 days EMA are used for the MACD indicator if based on the closing date, whereas a 9 day EMA will be used, for the Signal line.

There are two ways which are usually employed to understand the MACD. The first one is crossovers - if the MACD falls lower than the Signal line, it is an indication of upcoming low trend and recommends that may be it is a good time to place a short position trade. And if the MACD go beyond the signal line, it gives you an idea about an indication of upcoming up trend and recommends that may be it is a good time to place a long position trade.

The other way is divergence - if the currency price reverses from the MACD, it shows that the trend is going to end. If there is a negative divergence it means that the currency price produces a new high which is higher than the previous high, but the MACD failed to get to the new high, then you should be cautious that the current up ward trend in prices movement may go to the reverse direction. For positive divergence, it happens if the currency price beat a new low which is lower than the previous low, and the MACD failed to get to the new low, you should be cautious that the current currency price downfall will get over and up ward trend will occur once more.