Hi, good morning. David Frank, Chief Analyst
at Ava FX, FX Insights today. I want to do a how-to video this morningóIíve already
opened up my MetaTraderóand talk about the MACD.
What is the MACD? Itís the moving average convergence divergence, a really long name
for something we can just call MACD. Moving average convergence divergence, MACD ñ itís
something that we do use on occasion. What is this MACD?
Itís a trend line. Itís a trend-following momentum indicator. What it does is it shows
the relationship between two moving averages of prices. The MACD has its own formula, but
weíre really not going to use it since your Ava MetaTrader will calculate it for you.
But just in case you want to know, the MACD is calculated by subtracting the 26-day exponential
moving average, EMAówhich we might want to talk EMAs at one point, maybe next timeófrom
the 12-day EMA. A nine-day EMA of the MACD is called a signal line, is then plotted on
top of the MACD, functioning as a trigger for buy and sell signals.
Now, let’s open up an MACD of the silver chart and see what it looks like. Okay, what you
do is you go to Insert>Indicators, and then you go down to Oscillators. You see Relative
Strength Index, which weíve spoken about before. At one point weíre going to talk
about Ichimoku clouds, but today, MACD. Click on MACDóit opens up Colors, Main, Signal,
and so onóand then you hit OK. Here is your MACD. How do you read this? There
are three ways to read an MACD. Crossovers: As shown on the chart, when the MACD falls
below the signal lineóIím using a bar for the signal lineóit is a bearish signal, which
it indicates it might be time to sell. However, when it crosses above, it indicates a bullish
signal and maybe a time a buy. That’s one way.
Divergence: When the security price diverges from the MACD, when it does something different,
when the price is doing something different. So as you can see here, itís moving below,
which indicates it could be a time to sell, but itís doing just the opposite. That’s
divergence. And dramatic rise: When the MACD rises dramatically,
as we can see here, we can see it rising dramatically, what that means is the shorter moving average
pulls away from the longer-term moving average. That could signal that security is overbought
and will soon return to normal levels. So here we see a dramatic rise.
Traders also watch for a move above or below the zero lineóhereís the zero line right
hereóbecause this signals the position of the short-term average relative to the long-term
average. When the MACD is above zero, as it is as you can see hereóhereís the zero line,
as you can see there the MACD is going above the zero lineóthe short-term average is above
the long-term average. This signals upward momentum. The opposite is true when it falls
below the zero line. You also can see the correlations in the chart above as well.
This is the MACD. Itís another resource to use. You can use it along with the RSI and
along with the CCI, and itíll help indicate buy and sell. Weíll try to put everything
together next week for you and see what the MACD, the RSI and the CCI all look together
and how they perform together, and maybe thatíll help you as you continue your trading and
will help you buy and sell, hopefully be profitable, and thatíll make you happy, thatíll make
me happy, thatíll make everyone happy. But together, by using every tool you have at
your disposal, can only help you, and Iím going to try week by week showing you what
tools you have on what I must admit is a good trading platform, the Ava MetaTrader, and
how they will help you. And let’s pick up next week. Weíll put all
three together, the. MACD, the RSI and the CCI, next week, and weíll look at all three
together and see if we can use them all three at the same time. Alright guys, have a great
week trading. Iíll be back tomorrow with a currency or Forex or equity analysis. As
always, leave me some comments and suggestions. Let me know what you think about this MACD
here. Tell me where you think a security is overbought or oversold and give me some answers.
Alright guys, have a great week trading. Bye.