MACD stands for Moving Average Convergence Divergence. This is one of analytical tools which is popular among traders. MACD is a simple indicator that give a quite valid signal and broadly used by professional PAMM traders to decide what action they will take. This indicator will help the traders to identify the reversal trend. Besides, MACD can also give information whether the current trend is quite strong or not and can be used to find entry signals.
As reflected from its name, MACD is based on the Moving Average calculation. MACD will show and calculate the different values from 2 Moving Averages in each time period. Based on this fact, MACD usually moves within the market which is having a huge trending.
In the MACD chart, traders can see three lines. The first line is the number of periods used to calculate the faster MA, the second is the number of periods used to calculate the slower MA and the last line is the number of bars used to calculate the moving average of the difference between the two moving averages above. The last line is called histogram.
The histogram (shown in the form of vertical lines) simply shows the difference between the fast moving average and the slow one. There are 2 conditions of the histogram which is reflecting the movement of the two moving averages. We call them ‘divergence’ and ‘convergence’. The divergence occurs when the two moving averages separate. And the convergence occurs when the moving averages get closer to each other.
Because of the different speed of the moving averages, the faster MA will be more responsive than the slower one. When new trend occurs, the faster MA will react first and sometimes cross the slower line. That’s what we call a ‘crossover’. If this happens, the fast line will move away from the slow line. Not only able to give the crossover signal, MACD is also able to show histogram graphic from EMA indicator which has crossed-over with another EMA.
The MACD line is created by substracting the data from Moving Average indicator which has a big value with the data which has smaller value. For example: 26 EMA – 12 EMA. The MACD standard formula is MACD (12, 26, 9). This formula is very common and used by traders within the trading world. The change of this formula, for example, to MACD (6, 12, 5), MACD (7, 10, 5) or MACD (15, 13, 8) or other formulas, will only give fake signals to traders. To avoid this case, it’s better for traders to use this indicator in a longer time frame, e.g a 4-hours graphic or a one-day graphic.
If you want to be a good PAMM trader, you have to learn and make many trials-and-errors actions to know when an action is to take. The goal in trading forex is how to make maximum profit with the existing capital you have using the correct tools. Within the PAMM system, you will able to make this dream come true. The key words are : never stop learning.
Happy Trading using PAMM investments system !
Don’t forget to read this important article for PAMM trader
1. How to become a PAMM Trader
2. Understanding your Forex Trader Level as PAMM Trader