MACD ( Moving Average Convergence & Divergence) is one of the best indicators that help to identify the current trend using the four important lines.
MACD Indicator Overview:
MACD is the short form of Moving Average Convergence & Divergence. It is a trend following indicator that demonstrates the relationship between the two moving averages of a security price. This Indicator uses four important lines name MACD line, Signal line, Zero line & Histogram to verify the trend.
Where the MACD line is the difference between 12 days EMA and 26 days EMA. Secondly, The signal line is the difference between 9 days EMA of the MACD line and whereas the Histogram is the difference between the Macd line and the Signal line.
How to properly set the MACD indicator on the Olymp Trade?
Setting up the indicator is quite simple. The first thing you need to do is log in to your Olymp Trade account. Click on the indicator at the bottom of the page and select the indicator from the same. you can also change the colours for better visibility.
You can also change the setting of the indicator by clicking on the pencil icon. However, this indicator works best on the default settings.
How does the MACD indicator works?
The MACD indicator is really simple to understand. As I said earlier when the two lines % K and % D intersect each other it creates buy and sell opportunities. You just need to focus on the crossover whether the crossover is bullish or bearish. In Bullish crossover, you need to make a buy trade and similarly, make a sell trade on the bearish or negative crossover.
When to Make Buy Trade
When the MACD line intersects the signal line from the bottom with the MACD line above the signal line it indicates that the market is in a bullish trend and here we need to make a buy trade.
When to make Sell trade
Similarly, When the MACD line intersects the signal line from the top with the Signal above the same. It signals a bearish trend and here we need to make a sell trade.
Importance of Zero line
If you check out the indicator properly, you will surely notice the zero line near the histogram. This line helps us to identify the strength of the trend. This Indicator will signal a strong bullish trend if the bullish crossover takes place above the zero line. Similarly, You can identify the strong bearish trend if the bearish crossover takes place below the zero line.
How to use MACD Divergence Indicator
Divergence is one of the most important concept that you need to be aware of while trading. When the price and the indicator are moving in the opposite direction it indicates MACD divergence.
As, you can see above that the price is rising in both situations but the indicator is in a falling direction. Such a situation indicates a possible trend reversal. In such cases, you should use a trend confirmator like support and resistance or RSI.
I have covered everything about the MACD indicator you must have by now understood the MACD Indicator strategy and how it works. I would highly recommend you to practice the indicator in the Olymp Trade demo account and check how it behaves. Good Luck!!