The MACD line is faster than the signal line, and it will typically cross above and below the slower signal line. This action generates a bullish signal on the chart, which implies that the price might start an increase. When the MACD line crosses the signal line in the bearish direction, we have a bearish crossover.
This hints that the price action might be entering a bearish move. Above you see a bullish MACD crossover. The green circle shows the moment when the faster MACD line crosses the signal line in the bullish direction. The price action increases afterwards. When the general price action on the chart and the MACD direction are in contradiction, this clues us in that the price is likely to change directions. In this case, the MACD indicator is giving us a strong bullish signal.
Very often we will see price begin a strong upwards move after a bullish divergence with the MACD. After the occurrence of the divergence we see that the price starts an uptrend. The bearish divergence by the MACD hints that the price might start a bearish move. In many cases, we will see a rapid bearish move after a bearish MACD divergence. In such cases, we expect the bullish move to exhaust after the strong increase and a bearish move to appear.
In this case we expect the price to exhaust in its decrease and to initiate a new bullish move. In the green rectangle on the image above you see a case where the fast MACD line gains a relatively big distance from the red signal line. This indicates an oversold MACD signal. The price of the Forex pair increases afterwards. You can also trade effectively by using MACD in combination with price action analysis. The indicator is attached at the bottom of the price graph. The image starts with a bearish divergence between the price action and the MACD indicator.
As you see, the price creates higher highs, while the tops of the MACD indicator are decreasing blue. The two MACD lines cross afterwards and the price drops. Then we see four more price swings related with bullish and bearish MACD crossovers. Stop loss and take profit — one of the ways to utilize the Parabolic SAR is to use the dots as the marks to place the trailing stop.
Timeframe and the currency pair — try this strategy for scalping or the daytrading; You can try MACD indicator alone or accompanied with other indicators. Please, take into the account that our floating spread is set to 1. Do not forget that the size of the spread matters and the larger it is, the bigger should be the profits to cover it up. As you can see, adjust, test and then change accordingly — is the only possible way to find the options suitable for YOU.
There are dozens of the ways to trade the indicator alone or with the combinations with other ones. We show only one way to trade, however, nothing should stop the curious minds to try different settings and check how it can influence the final results. Try It Yourself As you can see, backtesting is quite simple activity in case if you have the right backtesting tools. The testing of this strategy was arranged in Forex Tester with the historical data that comes along with the program.
In addition, you will receive 21 years of free historical data easily downloadable straight from the software. Here you can read more about understaing the MACD indicator. What is your favorite indicator?
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Green bricks are used when the direction of the trend is up, while red bricks are used when the trend is down. Best Time Frame : 15min or above. The indicator uses a MACD line, a signal line, and a histogram. A signal line is actually a moving average of the MACD line itself. Convergence occurs when the two lines move towards each other, and divergence occurs when they move away from each other. We'll assume you're ok with this, but you can opt-out if you wish.
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