One of the most popular technical indicators for day trading and forex is the MACD. It measures the difference between two exponential moving averages and plots the difference as a line graph. A histogram depicting the difference between the second signal line and the MACD is then plotted. It is possible to change the settings of MACD to a different time, but most traders tend to prefer the default settings
How to read the MACD indicator
We can read the MACD indicator in two ways:
- Whether the market is oversold or overbought
- Whether the market is up-trending or down-trending
An example of MACD trading strategy
For any day trading system, all the rules must be clearly defined as easy to follow. This system is called MACD crossover. Their rules are as follows:
Long/short: One should take long MACD signals when the price is above 200 period-moving average.
Entry: Buying will be better when MACD crosses over the zero lines.
Sell: One must sell at a profit or loss when the MACD crosses below the zero lines.
How MACD trading strategy works
The MACD system seeks to buy when it detects that the price moves from a down trending environment to an up trending environment. As the MACD signals start moving back into a downtrend, the next objective is to ride that uptrend for as long as possible before you sell. To avoid trading against the direction of the major trend, it is also necessary that the price is above the 200-period moving average.
