Mathematical Method of Technical Analysis : Lesson 3

Moving Average Convergence/Divergence. Interpretation of MACD. How to add MACD to a chart on MetaTrader 4? Technical analysis. Part 3. Mathematical methods Lesson 3. Moving Average Convergence/Divergence (MACD) We continue to study technical indicators - mathematically justified ways to identify trends and predict its behavior. In the last lesson, we examined the basic indicator of the trend continuation - the moving average. Many different instruments of market analysis have been created on its basis. Today, we will focus on one of them - MACD - Moving Average Convergence/Divergence.Though it is a trend-following indicator, i. e. it signals a change in the market sentiment and belongs to the class of oscillators, it still uses exponential averages (EMA). Moving averages are based on the average price values of a certain period. These averages can be counted for different periods - both short and long. Video tutorial: How is MACD calculated MACD is an indicator of convergence and divergence of moving averages. It consists of two lines and is determined on the basis of two exponential moving averages with a period of 12 and 26. As an supplementary tool, this indicator also takes into account a simple moving average (SMA) with a period of 9. After setting parameters the indicator is reflected in the form of a separate small chart at the bottom of the screen with quotes. As a result of calculation, it has a zero level and fluctuates around it. The bar graph forms the MACD line and represents the difference between the moving averages with periods of 12 and 26. The red line in this chart is called the signal line; it is an exponential moving average with a period of 9 calculated on the MACD line. In fact, this is the equivalent of the MACD line, only with a period of 9, and it is shown on the graph regardless of the histogram. Interpretation of MACD Trading signal occurs when the MACD line is analyzed with the zero level:       ― MACD line crosses the zero line from the top to bottom - the sell signal, to the short position; high probability of temporary price drop;       ― if crosses the zero line from the bottom to the top - the signal to buy and the long position; on the contrary, the probability of an asset price increase is high. This indicator offers one more effective way to track price changes, so-called MACD-divergence. It occurs when the price chart and the MACD line have different trends:       ― on the price chart, peak B is below the peak of A price,       ― while on the MACD the corresponding peak of price B is higher than peak A. Usually the dynamics of the oscillator repeat the dynamics of prices. But sometimes divergence occurs. If prices continue to decline, while the indicator values ​​are growing steadily, this is a bullish divergence, which means that the trend will reverse and the price will go up. In the opposite situation, the decline in the indicator values ​​with an increase in prices is a bearish divergence. Here we should soon expect a price reduction and put a sell order. How to add MACD to the chart on MetaTrader 4 In «Navigator» find «Indicators» and then «Oscillators», there you will find MACD. Setting the common parameters:       ― periods for three MA;       ― price field (opening, closing, lows, highs). Place a few averages and study their behavior. Constant practice is extremely important when it comes to the use of this analytical tool. The next lesson will be devoted to one more trend-following indicator - Relative Strength Index. Customer support - 400-666-0880 You have received this letter because you subscribed on “Technical analysis. Part 3. Mathematical methods” course on the web-site traders academy. In order to prevent emails from traders.academy to be putted in spam, please add support@traders.academy to address book. Risk Disclosure    Privacy Policy    Unsubscribe Use of information: in case of full or partial use of materials from the web-site, it is necessary to provide the link to traders.academy as the source of information. In case of use of the materials in the Internet hyperlink to traders academy web-site. Automatic import of materials and information from this site is prohibited.