Forex Technical Analysis Articles - Moving Average Based Indicators - Conclusion

Technical Analysis

1. Introduction

2. Construction

3. Crossover Signals

4. Crossover Signals Continued

5. Oscillation

6. Centerline Crossovers

7. Combining MACD Crossovers and MACD-Line

8. Divergence

9. Conclusion

MACD is one of the strongest and most popular indicators in technical analysis. We have shown how it can be used to generate signals using crossovers, identify overbought and oversold levels, along with market tops and bottoms, and how to use positive and negative divergences to predict upcoming trend reversals. It’s this degree of versatility that makes MACD such an important tool to technical analysts.

One should be aware that it does not work well in trading ranges and can be affected by dramatic rises in price in one day that may create whipsaws. Identifying such markets and staying out is very important to getting the max benefit out of the MACD.

Moving Average Convergence Divergence (MACD) Summary
The MACD indicator is one of the simplest, most reliable, and most commonly used indicators available. The MACD indicator is a momentum oscillator with some trend-following characteristics.
Trend Identification
Interpretation	Description	Results
1. Trend	Fast line is rising faster than the signal line.	Uptrend
1. Trend	Fast line is falling faster than the signal line.	Downtrend
2. Oscillation	MACD lines are (way) above the centerline.	Overbought
2. Oscillation	MACD lines are (way) below the centerline.	Oversold
3. Center Line Crossovers	Fast line crosses below the centerline.	Bearish phase in market.
3. Center Line Crossovers	Fast line crosses the centerline going upwards.	Bullish phase in market.
Signals
1. MACD Crossovers (avoid whipssaws and trading ranges)	Fast line crosses below the signal line.	Sell signal.
1. MACD Crossovers (avoid whipssaws and trading ranges)	Fast line crosses above the signal line.	Buy signal
2. MACD-Line peaks.	When the MACD-Line histogram peaks (ebbs) and starts reversing.	Entry/Exit signals.
3. Negative or Bearish Divergence	MACD lines are well above the zero line, and start to weaken while price continues to move up.	Early signal of a possible market top or sell signal.
4. Positive or Bullish Divergence	When the MACD lines are well below the zero line and start to rise, but the price continues declining.	Early signal of a possible market bottom or buy signal.