MACD & Forex Technical Analysis

 

Using MACD When Trading Forex

 

Introduction to MACD (Moving Average Convergence / Divergence)

MACD is a very popular technical analysis tool developed back in 1979. MACD aims to identify major trend reversals in the prices of Financial Traded Instruments, and it can do that job relative well. But when it comes to the identification of overbought and oversold market levels there are much better tools available than MACD to do that job.

In overall, MACD is a good trend-indicator that it should be used along with another indicator capable of identifying overbought and oversold market levels, such is RSI. Of course more advanced traders may use their own developed systems to identify overbought and oversold market levels, I use TCI (Trading Center Indicator), more about TCI Technical Analysis here.

How can we Calculate MACD

MACD is usually measuring the price difference between a 12-day Exponential Moving Average (EMA) and a 26-day Exponential Moving Average (EMA) while the trigger is a 9-day Exponential Moving Average (EMA).

■ MACD Line is calculated by the 12-day EMA minus the 26-day EMA

■ MACD Signal Line is calculated by the 9-day EMA

■ MACD Histogram is calculated by the MACD Line minus the MACD Signal Line

 

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2 MACD Triggers

At times when MACD moves above the 9-day Exponential Moving Average (EMA) then the underlying instrument’s market is considered as a bullish market.

At times when MACD moves below the 9-day Exponential Moving Average (EMA) then the underlying instrument’s market is considered as a bearish market

 

Researching and Altering MACD Basic Settings

More combinations of settings may be used by traders in order to fasten MACD results. In the two AUDUSD charts that are presented below we have used the setting (MACD 8,34,5) and that means a very fast trigger.

Chart: AUDUSD 1-Week Chart using MACD and FxPros Technical AnalysisAUDUSD 1 WEEK CHART 

Chart: AUDUSD 30-Minute Chart using MACD and FxPros Technical Analysis

AUDUSD 30-MINUTES AND MACD 

If we take a close look to the MACD indications regarding AUDUSD and the corresponding Real Market Activity, we may conclude that sometimes MACD can be used effectively to identify price reversals either in short-term or in mid-term timeframes. Some false trend-reversal alerts can be found too, but in overall I think that the results are not bad if we consider that I have chosen this Forex Pair and the two time frames 100% randomly.

 

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MACD on MetaTrader4

For those who are interested in researching Forex using MetaTrader, here is the structure of MACD in MQL (The MetaTrader’s Built-In Expert-Advisor Language).

---Starts---

<expert>

type=INDICATOR_ADVISOR

separate_window=1

used_buffers=2

<param>

type=int

name=FastEMA

value=12

</param>

<param>

type=int

name=SlowEMA

value=26

</param>

<param>

type=int

name=SignalSMA

value=9

</param>

<ind>

color=Silver

type=DRAW_HISTOGRAM

</ind>

<ind>

color=Red

</ind>

</expert>

#header#

#property copyright "#copyright#"

#property link      "#link#"

 

#indicator_properties#

#extern_variables#

#mapping_buffers#

//---- indicator buffers

double ExtSilverBuffer[];

double ExtRedBuffer[];

 

//+------------------------------------------------------------------+

//| Custom indicator initialization function                         |

//+------------------------------------------------------------------+

int init()

  {

   #buffers_used#;

//---- drawing settings

   #indicators_init#

//----

   SetIndexDrawBegin(1,SignalSMA);

   IndicatorDigits(5);

//---- indicator buffers mapping

   SetIndexBuffer(0, ExtSilverBuffer);

   SetIndexBuffer(1, ExtRedBuffer);

//---- name for DataWindow and indicator subwindow label

   IndicatorShortName("MACD("+FastEMA+","+SlowEMA+","+SignalSMA+")");

//---- initialization done

   return(0);

  }

//+------------------------------------------------------------------+

//| Moving Averages Convergence/Divergence                           |

//+------------------------------------------------------------------+

int start()

  {

   int limit;

   int counted_bars=IndicatorCounted();

//---- check for possible errors

   if(counted_bars<0) return(-1);

//---- last counted bar will be recounted

   if(counted_bars>0) counted_bars--;

   limit=Bars-counted_bars;

//---- macd counted in the 1-st buffer

   for(int i=0; i<limit; i++)

      ExtSilverBuffer[i]=iMA(NULL,0,FastEMA,0,MODE_EMA,PRICE_CLOSE,i)-iMA(NULL,0,SlowEMA,0,MODE_EMA,PRICE_CLOSE,i);

//---- signal line counted in the 2-nd buffer

   for(i=0; i<limit; i++)

      ExtRedBuffer[i]=iMAOnArray(ExtSilverBuffer,Bars,SignalSMA,0,MODE_SMA,i);

//---- done

   return(0);

  }

//+------------------------------------------------------------------+

 

---Ends---

 

MACD & Forex Technical Analysis

by Giorgos Protonotarios, Financial Analyst

FxPros.net

 

You may also download this code just by pressing the download button.

Attachments:
FileDescriptionFile sizeCreated
Download this file (MACD.txt)MACD on MetaTrader4MACD ON MQL-4 (MetaTrader4)2 kB2013-08-05 11:52
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