MACD is an acronym for Moving Average Convergence Divergence. This tool is used to identify moving averages that are indicating a new trend, whether it’s bullish or bearish. After all, our #1 priority in trading is being able to find a trend, because that is where the most money is made.
With an MACD chart, you will usually see three numbers that are used for its settings.
+ The first is the number of periods that is used to calculate the faster moving average.
+ The second is the number of periods that are used in the slower moving average.
+ And the third is the number of bars that is used to calculate the moving average of the difference between the faster and slower moving averages.
Usually default of MACD chart (12,26,9), But I like (6,14,5). It very true when for signal.
MACD used to
+ Trying to find new trend
+ Trying to signal buy or sell
1. Trying to find new trend:
When The MACD line above zero line, Trend of chart is UP and the market is Bull Market
When The MACD line under zero line, Trend of chart is DOWN and the market is Bear Market
2 . Trying to signal BUY or SELL
The standard interpretation is to buy when the MACD line crosses up through the signal line, or sell when it crosses down through the signal line.
Divergences used to find opportunities when scalp. But it usually dangerous when reverse direction of trend.
The third cue-divergence-refers to a discrepancy between the MACD line and the graph of the stock price. Positive divergence between the MACD and price arises when price makes hits a new low, but the MACD doesn’t. This is interpreted as bullish, suggesting the downtrend may be nearly over. Negative divergence is when the stock price hits a new high but the MACD does not. This is interpreted as bearish, suggesting that recent price increases will not continue.
Divergence may also occur between the stock price and the histogram. If new high price levels are not confirmed by new high histogram levels, it is considered bearish; alternately, if new low price levels are not confirmed by new low histogram levels, it is considered bullish.
Necessary to combine all three factors as trade!