MACD – The Mobile Media Convergence and Divergence is another oscillators most used by traders. As the term suggests it is composed of more exponential moving averages:
- Ema 26 periods
- Ema 12 periods
- Ema 9 periods (Signal)
The MACD is the blue line in the lower part of the chart, it is calculated from the difference between the 26 periods EMA and the 12 periods EMA .The red line is the 9 periods EMA , called signal because when the MACD crosses it, points us to invest in a certain direction.
His job is to follow the trend and can mainly be used in these situations:
- Crossover: it is, perhaps, the most common situation where the basic rule, is to invest on the cross. If the MACD crosses the signal from the bottom to the top will have a Buy action, in the opposite case we will have a Sell action. This rule is widely used in timeframe longer than 15 minutes, because sometimes, after the intersection you have to wait for a confirmation from the candles.
- Crossover with the 0 line: some traders invest when the MACD line (blue) crosses the 0 line (Central Line). Even here, in the case of intersection from the bottom up we will get a bullish position, in the opposite case we will have a bearish input.
- Divergences:looking for divergences between price and MACD can be a good trading strategy. In situations where the price for example is to the upside, but the MACD shows a bearish direction you’ll have to be clever enough to understand that the rise of the price is about to end, so you have to expect a reversal point.