Optimize Your Trading With The MAC-D

Moving Average Convergence Divergence (MAC-D) is a technical indicator that can be used effectively to analyze different market environments. Developed by Gerald Appel sometimes in 1960s; MAC-D used primarily as an analytical tool for the equities market. Then in 1980s, the foreign exchange market was among other financial markets the MAC-D successfully invaded due to its eve increased reputation. In this article, we will try to shed some light on two different strategies that could be applied when trading the FX market with the MAC-D. But first let’s explain the basic formula for the MAC-D.

MAC-D BASIC STRUCTURE:
The MAC-D derives from three different exponential moving averages (EMAs).
1) The fast EMA: A 12 days period EMA
2) The slow EMA: A 26 days period EMA
3) The trigger line: A 9 days period EMA

By using the above formula, we can obtain the MAC-D line by measuring the difference between the fast EMA and the slow EMA. And by visualizing the difference between the MAC-D line and the Trigger line, we will have the MAC-D histogram.

Suggested Strategies for the MAC-D
1) Crossover Strategy:
• A buy signal is generated when the MAC-D line crosses up the trigger line
• A sell signal is generated when the MAC-D line crosses down the trigger line
2) Divergence Strategy
• A buy signal is generated when the price of a currency pair makes a new low while the MAC-D doesn’t (Positive Divergence).
• A sell signal is generated when the price of a currency pair makes new high while the MAC-D doesn’t (Negative Divergence).

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Source: www.articletrader.com