Before reading this lesson, you should have previously read through:

Moving average convergence/divergence (MACD) is mostly used as a trending indicator, but it can also be used as an oscillator as well.

The MACD is mostly used as a trending indicator, but can also be used an oscillator as well. It helps you decide which direction the price can move in, how strong that movement may be and when a trend is about to change.

It helps you decide what direction the price may move in, how strong that movement may be and when a trend is likely to change.

It gives you the possibility of entering a trend just as it starts and exiting one just before it finishes.

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How to read the MACD indicator

The MACD indicator comprises three separate readings, which appear together in a box underneath the price chart: a MACD line, a signal line and a histogram that shows the difference between the two lines.

The image below shows how the indicator appears on a chart:

MACD on a chart

number_1 Signal line
number_2 MACD
number_3 Histogram

The moving average lines

The MACD line is a moving average line that tracks the underlying asset’s price. The signal line is a moving average of the MACD line and interacts with it to produce trading signals.

The black MACD line is a moving average type line that tracks the underlying asset's price.

The red signal line is a moving average of the MACD line itself. It smooths out the movement of the MACD line and interacts with it to produce trading signals – we show you how to interpret them later in the lesson.

The histogram

The histogram shows the difference between the two lines and indicates the momentum behind a price move.

The difference between these two lines is displayed by the histogram.

This features bars that appear either below or above a horizontal zero line. It tells you how much momentum a price move has. This helps you recognise when a trend is gaining strength and when it may be about to run out of steam.

MT4 exception

The standard MACD indicator is different within MetaTrader 4 (MT4). Only the signal line and the histogram appear on the indicator – the MACD line itself is not shown.

The image below shows the MT4 version of MACD:

MACD2

number_1 Signal line
number_2 Histogram

You can learn how to add a customised MACD indicator to MT4 by going to the following tutorial:

Article
How to set up the MACD indicator in MetaTrader 4, change its settings and remove it when no longer required.
26

You can also ask questions regarding this in our forum:

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How to trade with the MACD indicator

If the bars on the histogram are below the zero line and the signal line crosses down below the MACD line, this suggests prices may fall – a signal for you to sell.

A signal to sell is when the MACD has crossed below the Signal line. The signal is stronger if the histogram bars are also below the zero line.

If the MACD crosses down below the Signal line, but the histogram has not confirmed it by producing bars below the zero line, this is still considered a sell signal, but not as strong.

The image below shows the MACD providing a strong sell signal:

MACD6

number_1 MACD has crossed down below the Signal line
number_2 Histogram is below the zero line

If the bars on the histogram are above the zero line and the MACD crosses up above the Signal line, this suggests prices may rise – a signal for you to buy.

A buy signal is given when the the MACD crosses above the Signal line. If the histogram is above the zero line, then the signal is stronger.

If the MACD crosses above the Signal line, but the histogram does not confirm it by having its bars above the zero line, this also gives you a buy signal, but not as strong

The image below shows the MACD providing a strong buy signal:

MACD7

number_1 MACD has crossed up above the Signal line
number_2 Histogram is above the zero line

You can put what you have learned into practice in the exercises below:

Exercise 1: Find the sell signal Show exercise
Exercise 2: Find the buy signal Show exercise

How to change the MACD settings

The MACD indicator's standard settings are 12, 26 and 9.

You can however adjust these settings to alter how quickly the indicator reacts to price action and how often it gives you trading signals.

The image below shows how the indicator appears under the standard settings:

MACD3

number_1 MACD line
number_2 Signal line

Increasing the MACD settings

Increasing the settings will slow the signals down, preventing false signals but also meaning you may miss the start of genuine moves.

The following chart shows how the MACD looks when the settings have been increased to 21, 50, 12:

MACD4

number_1 MACD line
number_2 Signal line

You can see that there are fewer trading signals.

Decreasing the MACD settings

Decreasing the indicator's settings has the opposite effect, making the indicator more sensitive so that it gives you more signals, but can also result in more false ones.

The following chart shows you how the MACD looks when the settings have been decreased to 6, 13, 5:

MACD5

number_1 MACD line
number_2 Signal line

If you do decide to change the indicator's settings, it is important that you check your changes are improving your trading results, logging and comparing any profits or losses you make from the same trading strategy under different indicator settings.

To learn how to test out new settings in order to incorporate them into your strategy, read the following lesson:

Lesson
Learn how to test a strategy with the your trading journal results.
You haven't attempted the quiz yet.
24

Summary

In this lesson you have learned that ...

  • … moving average convergence/divergence (MACD) is a trending indicator.
  • … it can help you decide when to buy or sell an asset, enabling you to enter trends as they start and exit them before they finish.
  • … the MACD line is a moving average line that tracks the underlying asset's price.
  • … the signal line is a moving average of the MACD line and interacts with it to produce trading signals.
  • … the histogram displays the difference between the MACD and signal lines and indicates the momentum of a price move and when it may be about to end.
  • ... buy and sell signals are given when the MACD line moves above and below the signal respectively.
  • … the histogram revolves around the zero line – bars below the signal line indicates downward momentum and above the zero line indicates upwards momentum.
  • … increasing the indicator's settings slows down its reaction so that it produces fewer signals – this reduces the risk of false signals.
  • … decreasing the indicator's settings speeds up its reaction so that it produces more signals – but raises the risk of false signals.

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  • MACD is very very best indicator
  • Awesome indicator i highly recommended
  • yap, important indicator.. to be pro biggrin
  • but wich's the best setting you suggest ??
  • Hi toujani,
    I think it is best to try the original (12, 26, 9) settings the developer came up with as those are the parameters it was designed to generate signals with. Regards.
    Hindsighthero
  • Yess.. I love MACD
    I'm using 5,9,3

    Try it.
  • Hello there,
    May I conclude that:
    Bullish signal: MACD line above Signal line and the histogram is above 0.
    Bearish signal: Signal line above MACD line and the histogram is below 0.
    Thanks.
  • Hallo,

    Welcher Timeframe ist der Beste, um mit diesem Indikator Trade-Gelegenheiten zu finden? M1, M5, M30, H1 ...
    Ist es richtig, dass man den M30 oder M15 Chart benutzt, um den Trend zu sehen und dann in M1 nach einer Gegenbewegung schaut, um den Trend schneller zu handeln?
    Vielen Dank!
  • Hello TradingFriend,

    This is the English tradimo website, so we ask that you please post in English.

    However, you can find the German version here.

    Thanks,
    Emma
  • Hello,

    How the MACD in MT4 is calculated and why the histogram is so different between MACD MT4 and MACD Tradimo version? I tried both of a same chart and their histogram is really different.
    Tradimo explains his own version in this article but, in the Tradimo course on the Zone Trade strategy, the MACD of MT4 is used!
    I also tried another software (FXCM Trading Station): MACD is the same as Tadimo version. So what is specific in MT4 version and why to use it in place of the other in the Zone Trade strategy????
  • Hi Brettwilde,

    as in every indicator there are parameters people can alter and default settings are different.
    So some versions of the MACD have 2 signal lines some 1 it is up to a traders preference which on you want to use.
    What you can do to compare them though is make sure you have the exact same settings everywhere.

    Regards,
    Timothy
  • Hi Timothy,

    Thank you for your reply but I tried the 2 macd on a graph with the same parameters (12,26,9) and they are really different. But I just searched on internet and I got an answer here: http://www.forexrazor.com/en-us/school/tabid/426/ID/435499/macd ! In the MT4 version, histogram = MACD line... In the real version, histogram = MACD line - MACD signal line.
  • Hi Brettwilde,

    Thanks for that info!
    I think which one you want to use is up to personal preference since 1 should be a little smoother than the other. Whats your view on which one you like more?

    Regards,

    Timothy
  • Hi Brettwilde,
    There are little differences between indicators. I plugged in both on the same chart, and on the left you can see that the signal line's numerical value is different and on the right example the difference is even more obvious if you look at the shape of the line. There are little differences how these indicators are smoothed, but true the histogram on the MT4 indicator resembles the MACD line in the conventional smile

    http://prntscr.com/3lix88

    Regards.
    Peter
  • MACD is one of the most credible indicators, thanks for the good information.
  • How do you use it? Crossover? Or bull/bear territory?
  • I use MACD crossovers with confirmation of moving averages to generates good signals with high successful rates.
  • Do you mind showing an example? smile
  • Not at all, I trade MACD line and signal line crossovers only with trend, and to easily identify the trend I use SMA 100 or 200 depending on the pair based on movement strength. So for EUR/USD I use SMA 100, if the price is below the SMA 100, I'll wait a for a downward MACD crossover signal, no matter whether the crossover occurs below or above 0 level, all what matters is to trade only with the trend not against it.

    I wanted to add a screenshot but there is no option to do that within the reply box.

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