The overview of the MACD indicator
The abbreviation MACD stands for the Moving Average Convergence Divergence. It is a very simple yet, extremely efficient indicator available at Olymp Trade. It helps to determine the trend and the points where it is best to open positions. It consists of two moving averages and the central zero line.
Here, you will get the necessary knowledge about the MACD indicator and using it in trading.
Configuring the Moving Average Convergence Divergence on the Olymp Trade platform
You need to log in to your Olymp Trade account and set the chart up. After that, find the graphical tools feature. When you click on it, a new window will appear. The MACD is among “Oscillators”.
You can change the color and the thickness of the lines by clicking the pen icon on the indicator’s window. There are other settings but for now let leave the default numbers 12, 26, and 9. If you want to read more about those parameters, we described them in detail in this MACD guide.
How to read the chart with the MACD oscillator set
Two lines are moving around the middle zero lines. These two lines are moving averages. The EMA12 responds to the price fluctuations quicker than the EMA26. Their convergence and divergence is the crucial thing to trade with the MACD oscillator.
The convergence and divergence of the moving averages are a base for the recognition if the trend is forming or not.
In case the EMA12 is crossing the EMA26 from below, we are talking about the beginning of an uptrend. The space between the lines is widening and it is a signal of an uptrend. That is why you should open long trade.
In the opposite scenario, when the EMA12 cuts the EMA26 from above, a gap will increase and the downtrend is developing. Open a short position then.
Pros and Cons of Using MACD at Olymp Trade😀😔
- MACD is a simple yet effective trend-following momentum indicator.
- It helps traders identify potential buy and sell opportunities based on crossovers and divergences.
- Allows for more objective decision-making by removing emotional influences.
- MACD can produce false signals during a choppy or sideways market.
- Divergences can often mislead traders into premature or risky trades.
Comparison: MACD vs Other Trading Indicators
|Efficient at identifying trends and momentum.||May be complex and not as proficient at trend identification.|
|May produce false signals in choppy markets.||Other indicators may be better suited for ranging markets.|
The divergence of the MACD indicator
We can talk about the divergence of the MACD when both indicator lines are moving in the opposite direction to the price. When the price is rising over a certain period of time and the lines are falling, or when the price is dropping while the indicator rises. Such a situation indicates a possible reversal of the trend. However, I wouldn’t advise trading the MACD divergences. I would rather recommend sitting patiently and waiting for the MACD to signal a strong trend.
You have now become familiar with the MACD oscillator on the Olymp Trade platform. Check out for yourself how it works. Apply yourself diligently. Open the Olymp Trade demo account and practice there — there is no substitute for practice when dealing with the risks of the market.
Share your experience with us in the comments section below.
FAQs about MACD Indicator🔍
- Q: What does MACD stand for? A: MACD stands for Moving Average Convergence Divergence, a trend-following momentum indicator.
- Q: How does MACD help in trading? A: MACD helps to identify possible buy and sell signals and potential ends of trends.
- Q: Can I solely rely on the MACD for my trading decisions? A: While MACD is a powerful tool, it is best used in conjunction with other technical indicators and methods.
- Q: Does MACD work in all market conditions? A: MACD works best in trending markets and can produce false signals in choppy or sideways markets.
- Q: Can beginners use the MACD indicator effectively? A: Yes, but like any trading indicator, it requires practice to use effectively.
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