Monday, March 17, 2008

Simple Application of MACD

Moving Average Convergence/Divergence or MACD in short is one the most classic technical indicators that is still being popularly used in analyzing forex trading. It is called the lagging indicator because it always move behind the real chart movement.

How to use MACD?

In simple application MACD is very easy to use as it is only constructed with two moving average lines. The two lines is usually colored in blue and red where blue is upward direction signal and red is the opposite. When the red line moving up parallel with the blue line this signal upward direction or the opposite downward when the blue line moving down parallel with the red line. Every movement has an end and reversal which signal by the interception of the two line.

Advantage of MACD

Since the MACD is one of the most used indicators we can make assumption that most traders will have similar intention when make decision for example they will make buy or sell on the interception point. In complex application MACD is more than just that we need to include the element of emotion in our decision.

Disadvantage of MACD

Since it is a lagging indicators it takes quite sometimes to wait which can be very frustrating. Furthermore in most occasion the market always moving ahead of MACD and by that time you will miss the big hit and waste your time waiting. Many traders use multiple indicators to reduce the flaw gap of a single indicators.

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