Posted by forex at 5:50 AM
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1. Open any charting platform and create a chart of the financial instrument of your choice. In most platforms, you simply type the ticker symbol of a stock or other instrument into the chart windows and press 'Enter.' A chart is immediately drawn.
2. Add the MACD indicator to the chart. The process of adding technical indicators varies among charting platforms, but it is always clearly available as a single button or menu item. If necessary, first select the category of indicators called 'oscillators' or 'lower studies,' as this is where the MACD will be found.
3. Identify the MACD sub-graph that appears below the price chart after it has been added. It will display two moving lines that are separate from the price and not superimposed on the main price chart as with other studies.
4. Identify 'signal crossovers' that frequently appear in the MACD. These occur when the main MACD line crosses through its signal line. The two lines are easily distinguished as the MACD fluctuates more rapidly than the 'smoother' signal. Signal line crossovers are one way to interpret the MACD. They suggest that a trend is beginning and momentum is gaining. A cross above the signal suggests prices will rise, while a cross below the signal indicates lower prices may be ahead.
5. Identify the occasions when the MACD crosses the center (zero) line. Most charting programs will show a constant horizontal line that bisects the MACD. When the main MACD line crosses above or below this line, it is often indicative of strengthening momentum to the upside or downside. This is another interpretation of the MACD.
6. Study the highs and lows in the price chart itself. Prices fluctuate and create peaks. Each subsequent high point may be higher or lower than the previous high. Observe the highs and lows in the MACD line that accompany these points in the price. When prices create a new higher high but the MACD creates a lower high, this is called 'divergence' and is one of the most important concepts in technical analysis. The indicator is not confirming the strength in the market and a major price reversal may be imminent.