I have talked about what a MACD indicator is in the former article: Learn Forex Indicators- MACD in Forex Technical Analysis; then how we can apply it in forex trading? Actually there are three basic principles that can help us make decisions, and today I will make an explanation of them.
The first principle occurs when both the MACD and the signal line are above the zero line. If the former line crosses up through the latter one, it is a signal to buy; if the MACD line crosses down through the signal line, it may just indicate that the trend bounces back down temporarily. forex traders should apply some other indicators altogether to identify whether there is a trend reversal.
The second principle: when both the MACD and the signal line are below the zero line, if the MACD crosses down through the signal line, it indicates a good time to sell; if the former line crosses up through the latter one, it may just indicate that the trend bounces back up temporarily, forex traders can a comprehensive prediction combining with other indicators.
Further to the former two principles, if the MACD crosses up from the zero line, it means a bullish signal; if the MACD crosses down from the zero line, it means the opposite.
The third principle: traders should pay attention to the divergence between the MACD line and the candlesticks. Let me make a clearer explanation: if price hits a new low but the MACD line doesn’t,forex traders can consider long; on the contrary, if price reaches a new high but the MACD line doesn’t, forex traders can consider short.
There is one more thing: although a MACD indicator can predict the future price movements in forex trading, it is a little bit not so comprehensive and has a success rate, so forex traders always need to be cautious and apply some other forex indicators to make better analysis.