Article One: Technical Indicators-Moving Average Convergence Divergence (MACD)

Moving Avergae Convergence Divergence (MACD) indicator was invented by Gerald Appel in 1970. he used it to identify changes in strength, direction, force and period of a trend in stock prices. although MACD was originally used for stock trading it is now used for  trading.

MACD is a lagging indicator, which shows the average of historical price movement and indicates new trend formation, be it bullish (buy) or bearish (sell).

MACD usually has three numbers. the first, is the number of periods used to calculate the faster moving average. the second is the number used to calculate the slower moving average. the third, is a bar chart or signal line used to calculate the moving average of the difference between the faster and the slower moving average. the first number is the faster line while the second number is the slower line of the MACD indicator. the first line responds to price movement fast, because the number of periods used to calculate the faster moving average line is short, while the second line responds to price movement slowly, because the number of periods used to calculate the slower moving average line is long.

when the MACD moving average lines move towards each other they are said to converge and when they move away from each other they are said to diverge this gives this indicator it's name Moving Average Convergence Divergence (MACD).

This indicator is best used when the  market has a definite trend, and it may give a wrong or conflicting data when the market is ranging.

Moving Average Convergence Divergence (MACD) crossover:

in 1986 Thomas Aspray added a histogram to Geralds Appel MACD indicator. he did this so he could know when the  MACD lines cross each other.

when the lines cross it's called a crossover. MACD cross over usually indicates a new trend formation. if the faster moving average line cross under the slower moving average and goes down it could indicate the start of a new bearish trend and if the faster moving average line crosses over the slower moving average and goes up it may indicate a new bullish trend. when the lines cross, at the point they cross the difference between them is zero, this means that there is no difference between the faster moving average and the slower moving average.

NOTE: just like all indicators the MACD may give false signals which could result in loss of money. The MACD is a good indicator but it should not be used as the only technical indicator while trading. other indicators should be used to complement it, this should be coupled with a sound understanding of fundamental analysis and all the other economic activities that control the forex market.

thank you for reading.