A1 Trading Company

Ticker tape by TradingView

Unlock Exclusive Guides as a VIP Member! 

Use Code READER for 10% Off

LEARN MORE

MACD Indicator

Big Idea: The moving average convergence divergence indicator focuses on the 12 and 26 day moving average looking for bearish or bullish signals in a particular market. You calculate it by subtracting the 12 period from the 26 period Exponential Moving Average. That line is then charted with the 9 day EMA. If the MACD crosses above or below the signal line, the trader can indicate when to buy or sell.

MACD

This chart shows the price of CADJPY on the top and the 14-4 Hour Period Relative Strength Index on the bottom. As you can see, there are several points where the chart hits above or below the purple area. Anything within that zone is the “normal level” of where price could be. The part in gray represents where price is overbought or oversold. When price dipped to 30 on that first blue line, CADJPY entered into a short term uptrend. When the price rose to 70, the pair came back down.
This tool is very helpful in buy-the-dip or short-the-top opportunities, but they are not always correct. You can also see that those two overbought areas on the chart marked above 70 twice, but price continued to rise. Just as any trading tool, RSI should be used to estimate potential entries. In this instance, it would have been better to buy the dips rather than shorting when the pair moved too high according to the 14-Period RSI tool.

Key Takeaways

-MACD indicator is a good indicator for spotting mean reversions or changes in direction

-Although it can be helpful, it does not always work when the signal line is crossed

-MACD is charting two lines where one is the difference between the 12 and 26 period moving average and the other is the 9 period moving average

Additional Resources

What's Next?

Keep learning about technical analysis!
  • SUPPORT & RESISTANCE

    Learn how to use the number 1 most commonly used price action tool!
    BEGIN LESSON

    MOVING AVERAGES

    Learn all about moving averages, and how to trade with them!
    BEGIN LESSON

    RELATIVE STRENGTH INDEX

    Learn all RSI, and how to trade with it!
    BEGIN LESSON
  • ENGULFING & PINBAR CANDLESTICK PATTERN

    Learn all about engulfing & pinbar candlestick patterns, how to spot them, and how to trade them!
    BEGIN LESSON

    HAMMER CANDLESTICK PATTERN

    Learn all about hammer candlestick patterns, how to spot them, and how to trade them!
    BEGIN LESSON

    CANDLESTICK PATTERN BASICS

    Learn all about candlestick patterns, how to spot them, and how to trade them!
    BEGIN LESSON
  • REVERAL TRADING

    Learn how to spot markets reversing early, and get involved!
    BEGIN LESSON

    HEAD & SHOULDERS PATTERN

    Learn how to use this popular reversal method in your trading
    BEGIN LESSON

    BUILDING A TECHNICAL BIAS

    How to use technicals to assist your trading entries
    BEGIN LESSON

Done With Technical Analysis?

Unlock exclusive guides by becoming a VIP member! Get 10% off with code 'READER'
  • Risk on vs Risk Off Guide

    Understand the difference between risk on and risk off trading
    BEGIN LESSON

    Building a trading plan

    Find out how to build a winning trading plan!
    BEGIN LESSON

    FUndamental Analysis

    Download the Fundamental Analysis Guide!
    UNLOCK
  • Sentiment Analysis

    Download the Technical Analysis Guide!
    UNLOCK

    Trading Psychology

    Download the Trading Psychology Guide!
    UNLOCK

    Risk management

    Learn about Risk to Reward & Drawdowns
    UNLOCK
  • Strategy Development

    Backtesting & Forward Testing
    UNLOCK

    Nick's strategy

    Download Nick's Strategy
    UNLOCK
Home
Edgefinder
VIP
Menu
homepencillockflagpaperclipfile-emptybookbookmarksmartphonelaptopmenuhighlight linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram