Applying The MACD Indicator With MetaTrader 4: Moving Average Convergence Divergence
AAA
  1. Applying The MACD Indicator With MetaTrader 4: Introduction
  2. Applying The MACD Indicator With MetaTrader 4: Moving Average Convergence Divergence
  3. Applying The MACD Indicator With MetaTrader 4: Using The MACD
  4. Applying The MACD Indicator With MetaTrader 4: Customizing The MACD
  5. Applying The MACD Indicator With MetaTrader 4: Editing and Deleting The MACD
  6. Applying The MACD Indicator With MetaTrader 4: Conclusion

Applying The MACD Indicator With MetaTrader 4: Moving Average Convergence Divergence

The moving average convergence divergence, commonly called the MACD or "Mac D," is a technical indicator developed by Gerald Appel in 1979. Shown in Figure 1, the MACD is a popular and versatile tool used to recognize and follow strong trends, and to spot trend reversals.

A MACD applied to a 4-hour chart of the GBPUSD currency pair.
Figure 1: A MACD applied to a four-hour chart of the GBP/USD currency pair.


The MACD is based on the difference between two moving averages (MAs): a faster one (to reflect shorter-term market trends) minus a slower one (to reflect longer-term trends). Typically, a 12-period exponential moving average (the faster MA) is paired with a 26-period exponential moving average (the slower MA); both moving averages use closing prices for calculations. Other MA lengths can be used, such as a 19-period exponential moving average (EMA) paired with a 39-period EMA, or an 8-period EMA paired with a 17-period EMA. The examples in this tutorial will reflect the 12-26 period MACD, as it is one of the most widely used. The 12-26 period MACD is calculated as:

MACD = 12-period EMA minus 26-period EMA


In 1986, Thomas Aspray added a histogram (a series of vertical lines, shown in Figure 1 in dark blue) to the MACD indicator. The histogram is positive (above the zero line) when the MACD (12-period EMA minus the 26-period EMA) is above its 9-period EMA; it is negative (below the zero line) when the MACD is below its 9-period EMA. The histogram grows larger as the speed of price movement accelerates. Conversely, as price movement slows down, the histogram contracts. The histogram actually represents the difference (or divergence) between the MACD and the signal line (the bright pink curving line in Figure 1):

Histogram = MACD minus Signal


The signal line is a 9-period EMA of the MACD itself that is plotted on top of the MACD:

Signal = 9-period EMA of MACD

Some traders use this "signal line" as a trigger for buy and sell signals: for example, a buy signal may exist when the MACD moves above its own 9-period EMA, and a sell signal might occur when the MACD moves below its 9-period EMA, as shown in Figure 2. Because the MACD is such a versatile tool with a variety of possible uses, traders may wish to research the many other possible interpretations.

One interpretation of the MACD: sell as the histogram drops below the signal line, and buy when the histogram rises above the signal line.
Figure 2: One interpretation of the MACD: sell as the histogram drops below the signal line, and buy when the histogram rises above the signal line.


The name of an indicator appears at the top of the price chart to which the indicator is attached. When the MACD indicator is applied to a price chart, "MACD" appears at the top and its EMA lengths appear in parentheses next to its name. Each EMA length is separated by a comma, as shown in Figure 3. For example, the 12-26 MACD with a 9-period EMA signal line will appear as MACD (12, 26, 9).

The name of an indicator appears at the top of the chart to which the indicator is attached.
Figure 3: The name of an indicator appears at the top of the chart to which the indicator is attached. Here, MACD is shown with its settings in parentheses (12, 26, 9).
Applying The MACD Indicator With MetaTrader 4: Using The MACD

  1. Applying The MACD Indicator With MetaTrader 4: Introduction
  2. Applying The MACD Indicator With MetaTrader 4: Moving Average Convergence Divergence
  3. Applying The MACD Indicator With MetaTrader 4: Using The MACD
  4. Applying The MACD Indicator With MetaTrader 4: Customizing The MACD
  5. Applying The MACD Indicator With MetaTrader 4: Editing and Deleting The MACD
  6. Applying The MACD Indicator With MetaTrader 4: Conclusion
RELATED TERMS
  1. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  2. Indicator

    Indicators are statistics used to measure current conditions ...
  3. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  4. Mass Index

    A form of technical analysis that looks at the range between ...
  5. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  6. On-Balance Volume (OBV)

    A momentum indicator that uses volume flow to predict changes ...
  1. How important are seasonal trends in the automotive sector?

    Learn more about the automotive industry, including the strong seasonal sales trends for the industry and some of the major ...
  2. What is the difference between a drawdown in banking and a drawdown in trading?

    Understand the two completely different meanings of the term ''drawdown'' as it is applied within the contexts of trading ...
  3. How can the exponential moving average be used in swing trading?

    Learn about exponential moving averages and how to use the exponential moving average crossover for swing trading to signal ...
  4. Why is the Triple Exponential Moving Average (TEMA) important for traders and analysts?

    Learn how the triple exponential moving average is calculated and the indications it provides that are most helpful to traders ...

You May Also Like

Related Tutorials
  1. Mutual Funds & ETFs

    Top ETFs And What They Track: A Tutorial

  2. Active Trading Fundamentals

    Introduction to Stock Trader Types

  3. Trading Strategies

    Guide to Pairs Trading

  4. Trading Systems & Software

    Beginner's Guide To J-Trader

  5. Trading Systems & Software

    Beginner's Guide To CQG Integrated Client Trading Platform

Trading Center