Posted by forex at 1:51 AM
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1. Select a charting software that has the MACD. Programs like MetaTrader, Stockcharts and IncredibleCharts provide this indicator free. Click 'Insert,' 'Add New Indicator' and 'MACD.'
2. Use the default settings, which use a 12- and 26-day exponential moving average and a nine-day exponential moving average for the MACD signal line.
3. Use the signal lines by watching for a crossover. When the 12-day EMA crosses above the 26-day EMA, this is a buy signal. When it crosses below, this is a sell signal.
4. Add a zero or center line to the MACD Histogram indicator. This gives the histogram a base point from which to judge whether the market is moving up or down. When the histogram crosses above the zero line, the market is moving up. When it falls below the zero line, the market is moving down. To add a zero line, double-click the MACD indicator window. Click the 'Levels' tab and click 'Add' and type in '0' under 'Levels.' Click 'Save' and the zero line appears.
5. Look for a buy signal. This occurs when the histogram or bars move above the center or zero line. It is recommended that you use the MACD indicator in conjunction with other indicators as a means of confirmation. Using the indicator as stand-alone indicator will often yield too many false signals.
6. Watch for sell signals. These are indicated when the histogram bars cross below the center line. Again, make sure to use the MACD in conjunction with other indicators to confirm it.
7. Watch for divergence in the MACD histogram. For example, if the stock price is making a series of higher and higher swings, but the MACD histogram is not making new highs. This can warn of a coming reversal in the market trend. The easiest way to see this is to draw a trend line against the tops of the highs of the stock market price and do the same thing against the histogram. If the trend lines are not going in the same direction, you have divergence. This also applies to market lows. If the market is making lower lows and the MACD histogram is not, you have divergence and the market direction is likely to reverse.