MACD Divergence Indicator MT4 In-depth View
Success does not come by accident; it comes from due diligence, hard work, and following certain principles. The same is true when it comes to trading forex. You don’t make profits without first understanding the principles that guide the market or learning from successful traders.
Sometimes, you also need to use tested and proven tools and top 10 mt4 indicators. One of the indicators proven to be quite reliable in analyzing the market is the MACD Divergence Indicator MT4. Gerald Appeal created the concept in 1979 and remains prevalent due to its flexibility and simplicity.
What is MACD Divergence Indicator MT4?
MACD Divergence Indicator MT4 is a leading technical analysis indicator that spots changes in trend and momentum. It is one of the most efficient and effective momentum indicator that pre-informs traders on what is yet to happen. Most times, newbies are challenged with the numerous components of MACD that work together but are relaxed when the MACD Divergence MT4 indicator comes in play. This is because it automatically identifies and plots the divergence between MACD and price and gives an explicit picture of the divergence on your charts.
While still on default settings, a bullish divergence is plotted with a blue line. And the bearish divergence is plotted with a red line. The representations given by this indicator creates signals for buy and sell as it displays blue and red arrows on your chart.
A bullish divergence between the MACD indicator and the price happens when a new high is greater than the previous high, and an equivalent MACD value is lesser than the previous one. Here, the price does not go up, and this creates a buy signal. Currency Strength meters are usefull to see how strong a currency is.
In contrast, a bearish divergence between the MACD indicator and the price occurs when a new low is established underneath the previous low, and equivalent MACD value is greater than the previous one. At this time, the value of the asset is going higher and undoubtedly expensive. Hence, a sell signal is generated.
Benefits of MACD Divergence Indicator MT4
Below are some of the inestimable benefits traders are habitually after which has made a name for the MACD divergence Indicator:
1. It gives insight into the next direction of the price of assets.
2. It provides cues on the force of movement that the price of the asset would create.
3. The MACD divergence Indicator also points towards conditions where trends may experience changes.
4. A novice can successfully work with it.
MACD divergence Graphs
MACD divergence Indicator MT4 is usually presented on graphs with a smooth shape compared to the price graph and the other momentum indicators. It makes use of three data points; the signal line, the MACD line, and histogram.
The MACD line ascertains the distance between two moving averages. The signal line identifies changes in price momentum and triggers buy and sell signals. The histogram explicitly plots the difference between the signal and MACD lines. TIP: We always advice to test several indicators together. So for example the macd works good with the chande kroll stop indicator.
How to calculate MACD
In line with the meaning of the acronym, we are basically considering the difference between two exponential moving averages: 12 days and 26 days period. The 9-day signal line is positioned on the MACD line, and it illustrates opportunities for sale and purchase. While working with the indicator, the difference is shown in a separate window.
It is possible to draw the graph at any time interval; it can be for five minutes, some days, or even longer. While calculating, traders make use of fixed close price as the averaging price.
Also, other prices can be put into considerations. These prices include open prices, maximum or minimum prices, and different amalgamations of these numbers.
Application of MACD Divergence Indicator MT4
This indicator is significantly useful when trading in an unstable market. There are basic ways to use this indicator:
2. Overbought and oversold market conditions.
Using the intersection method:
MACD divergence Indicator MT4 indicates a buy signal when the level of its line rises above the level of the signal line. And a sell signal when the level of its line is below its signal line. Another approach of analyzing the signals is buying or selling assets when MACD value overlapped the 0 level bottom-up or top-down.
Using the overbought or oversold market conditions:
It is important to note that MACD levels of overbought or oversold areas regularly experience changes, and this is dependent on the trading asset.
If the indicator moves up (short moving average movement away from the long line), it is believed that the asset prices are far-off the normal level and will adjust in a downward direction.
Whenever the MACD indicators and the asset price move in different directions, note that there will soon be a trend reversal.
MACD Divergence Strategy
When it comes to Forex trading, the MACD divergence Indicator MT4 is effortlessly one of the most popular trading strategies out there. Here are some techniques that are beneficial to traders:
This is a MACD divergence strategy that involves the ability to accurately predict when an asset (forex pair) would have a price reversal. It is quite not easy to have such foresight, but with MACD Divergence Indicator MT4, it is no difficult task.
Amazingly, traders can make significant gains just during the short time provided their price reversal predictions are correct.
This strategy involves having a good knowledge of established market trends as to how asset classes will most likely behave. In opposition to the Reversal strategy, this strategy is useful and works best over a longer period as opposed to a short one.
For instance, a trader might decide to take the 200-day moving average and then be able to predict the prevailing trend, based on the trades he placed.
Conclusion of MACD divergence Indicator MT4
The MACD divergence Indicator MT4, as a forex trading strategy, comfortably enjoys being in a league of its own. That is because it helps traders track trends and momentum in the course of their trading irrespective of the period, daily, weekly, or even monthly.
As earlier stated, MACD looks at the difference between the 12 and 26 days’ Exponential Moving Averages (EMA). This it does by using the 9 day EMA as a pointer for buying and selling. It is best to buy whenever the MACD goes higher than the 9 day EMA and sell whenever the MACD moves below the 9 day EMA.
While on this platform, there are several indicators and tools to help traders maximize their profits. You can check these out through this link and move towards a very successful trading career.
And of course, don’t forget to comment on your experience using MACD Divergence Indicator MT4 in the comment section below on our Best MT4 Indicators website.