Updated: Feb 9
This Article will be about Moving Average Convergence Divergence(MACD).
What is MACD?
The MACD subtracts the 12-day EMA from the 26-day EMA, and combines this with a 9-day EMA and a zero line.
A cross by the MACD to the upside is bullish, and to the downside is bearish
A cross above the zero line is bullish and a cross below the zero line is bearish
When the price moves higher (lower) as the MACD moves lower(higher) this is a divergence of the MACD from the price and indicates a possible trend change.
Let me explain the MACD chart first. The central line is the zero line for the MACD. The blue line is the MACD line and the orange line is the 9 period EMA.
1.As we can see on the chart the GBP/USD price goes down, as the MACD continues up. So this is MACD Bulish Divergence. We have the price of the GBP/USD dropping and the Mac rising. So this should tell us if we're short the pair GBP/USD to tighten our stops and possibly look for an exit of our short and prepared to go long.
2.The price is going up new Higher Highs, but just look at the MACD. MACD indicator going down and we can see lower lows. This is MACD Bearish Divergence.
3.The same Price going down, MACD going up. And as we can see at 4. we can see the cross of the macd before even the price goes up. These two confirms that we need to go long.
4.This is for real life use, Right now GBP/USD going down, but before that we can find MACD Bearish Divergence. So right now I would look for short positions only.