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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

Forex FAQ for Traders

Forex FAQ
Forex Trading FAQ for Beginners and Advanced Traders

What is the Foreign Exchange Market?

The Forex (Foreign exchange) market is a giant and high liquid financial market operating 24/5. The Forex markets is a 100% decentralized market that is based on the Electronic Network of the banks (ECN). World currencies are traded within Forex in pairs and it is estimated that the daily volume activity in Forex today is reaching 4 trillion USD.

 

What is a Currency Pair?

A currency pair includes two currencies that indicate an exchange rate. For example the currency pair EUR/USD. The first quote of the two pairs (EUR in the example) is called the Base Currency. The second quote in the pair (USD in the example) is called the counter pair. All currencies are indicated with specific symbols, here are the most popular symbols:

USD is the Forex symbol of US Dollar
EUR is the Forex symbol of Euro
GBP is the Forex symbol of British Pound
JPY is the Forex symbol of Japanese Yen
CHF is the Forex symbol of Swiss Franc
AUD is the Forex symbol of Australian Dollar

CAD is the Forex symbol of Canadian Dollar
NZD is the Forex symbol of New Zealand Dollar

The most popular currency pairs are EUR/USD and GBP/USD. Why popular pairs are important for traders? Because popularity means liquidity, and liquidity means narrower spreads. The magnitude of the spread defines in a high extend the profitability potential of any Forex trader.

 

FXCC Forex Trading

 

What is a Dealing Desk Broker and what is a Non-Dealing Desk Broker?

A dealing desk Forex broker uses a dealing-desk to provide its clients with pricing and execution. A no-dealing desk broker does not have a dealing desk and uses liquidity from external providers to execute trades. In general No-Dealing Desk (NDD) brokers are offering better trading conditions than dealing-desk brokers. NDD brokers and are divided to ECN and STP Fx brokers.

 

What is a Market Maker Forex broker?

A market maker Forex broker provides pricing and execution by taking the opposite side of his clients trading orders. A market maker Forex Broker earns from the spread between the bid and offer price. Usually spreads offered by Market Makers are very high and that is why professional traders prefer other types of brokerage, and especially ECN Forex Brokers.

 

What is an ECN Forex Broker?

ECN means Electronic Communications Network and refers to the global banking network where currencies are traded against its other. A Forex ECN broker as it is already mentioned does not use a dealing desk but instead it passes his clients trading order directly to the ECN system without manipulation and intervention. Trades using the ECN network are executed with anonymity. Traders using the ECN network enjoy lower spreads and have the ability to observe live the market dept. Some ECN Forex brokers charge a trading commission along with the spread, others don’t.

 

What are Long and Short Positions when trading Forex?

A long position in Forex trading is a position that generates profits from an increase of the price of a currency pair. A short position is a position that generates profit from the decrease of the price of a currency pair.

 

What is Spread, Buy and Sell Quotes?

The spread is the difference between the buy and the sell quotes and it is measured in pips. For example if GBP/USD is offered at 1.5500-1.5510, the spread is 10 pips.

The buy quote is the price you can buy a base currency and it is displayed on the right. In the previous example of GBP/USD, it was 1.5510.

The sell quote is the price you can sell a currency and it is displayed on the left. In the previous example of GBP/USD, it was 1.5500.

 

What is a Pip?

A pip is the smallest price increment of any currency pair. For example as concerns GBP/USD the lowest price increment is 0.0001 that means that for GBP/USD 1 pip = 0.0001.

 

What is a Lot?

A lot in Forex trading is the standard unit size of any transaction. One standard lot usually it is equal to 100,000 units of the base currency. Other sizes include mini lots (10,000 units) and micro lots (1,000 units).

 

What is Margin in Forex Trading?

Margin is the deposit required by a trader in order to open a trading position. Margin in an account can be either used or free. The used margin is already used for opening or maintaining a position, while the free margin can be used for opening new positions in the future. The amount of margin required is defined by the specific policy of each Forex Broker.

 

What is Leverage?

The trading Leverage creates an opportunity to trade large amounts of Forex currencies. If you deposit 1,000USD for example and the leverage provided by your broker is 100:1, you can trade up to 100,000 USD. Usually Forex Brokers are offering leverage 100:1 to 200:1, in some cases the leverage can be up to 1,000:1. It sounds like easy money but actually high leverage is the easiest way to loose all your funds. Why? Because as the leverage gets higher, the spread and the commission charged by your broker are getting higher too. When you trade using high leverage you must discipline your trading decisions and concentrating on the major pairs which are offered in narrow spreads. If you use high leverage in minor pairs (offered with spreads 40-50 pips or even more), the probability of loosing funds is huge.

 

What is Slippage?

Slippage is the outcome of slow order execution and can highly disturb day-traders. The slippage actually is the difference between the price of your trading order and the price that the order is finally executed. The slippage is measured in pips and it is much more intense in volatile markets. The effect of slippage is called also price manipulation. ECN brokers in general provide execution with less slippage than Market Makers do.

 

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Find more »Forex Trading Tips | »Fx Market Statistics »Choosing Fx Pros | »Forex Trading Guide

Forex Reviews:  »XEMarkets | »RoboForex | »Dukascopy 

 

◘ Forex FAQ, FxPros.net (2013) 

Forex Trendy Review

Forex Trendy ReviewForex Trendy Trading Review

 

Trading System Name: Forex Trendy

System Type: Trend Scanner

Delivery: E-mail & Sound Forex Alerts

Platforms: MetaTrader / NinjaTrader / TradeStation

Price: $37 (3-month subscription)

» Visit

Forex Trendy Basic Information

Forex Trendy is a solution for those traders that are focusing on the best time to trade Forex. Without using indicators to identify the master trend, Forex Trendy is based on market action. The Forex Trendy is able to scan 34 currency pairs on multiple time frames that are ranged between 1 minute and 1 month. Forex Trendy is able to determine the master trend by identifying new chart patterns when they occur. It monitors instantly all available time frames and recognizing pattern break-outs. This is when sound alerts are generated. The system can be adapted to most popular trading platforms such is MetaTrader, TradeStation and NinjaTrader.

Forex Trendy Package

Read more: Forex Trendy Review
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