Posted by forex at 9:17 AM
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1. Open you charting software with the security you want to trade. Select the time period for each bar or candle. The MACD makes its calculations based on the time period you are using for your trading.
2. Select MACD, or Moving Average Convergence/Divergence, from the charting software choices of technical indicators. The standard setting of 12 for the fast line and 26 for the slow line work well in most situations. The MACD indicator sits below the price chart and consists of two lines and a histogram or series of vertical bars. The lines and histogram move above and below a zero line.
3. Note the colors your software gives to the two MACD lines. One line is the main MACD line and the second is called the MACD trigger line. MACD trading indicators are given when the two lines cross over each other.
4. Determine the MACD to be giving a Buy signal when the trigger line crosses from below the MACD line to above. This signal tells you to buy to open a trade in the tracked security. When the trigger line crosses the MACD line from above to below it is a signal to sell to open (sell short) a trading position.
5. Watch the histogram for the indication to close the trade. The histogram bars will get longer, upwards for a long trade and downwards for a short trade, as the price trend strengthens. When the histogram bars start to shrink in length, it is a sign the trend is weakening. Conservative traders will take their profits when the histogram bars start declining. More aggressive traders will wait for the bars to get closer to the zero line before closing the trade.