Moving Average Convergence Divergence (MACD) Explained

By Ahmad Hassam

Moving Average Convergence Divergence, acronym MACD and pronounced Mac Dee is one of the simple and most reliable technical tools in your trading arsenal as a currency trader. MACD is a trend following momentum oscillator or indicator and is used often by most of the traders.

MACD shows the relationship between two moving averages of recent prices. It is a lagging indicator. Most technical indicators are lagging which means they are slow. They just tell you what just happened after the fact.

Technical analysis is based on the belief that past prices can be used to predict the future prices in the currency markets. Learning technical analysis is essential for you as a currency trader.

There are many chart types and technical indicators used in the technical analysis. Technical analysis helps you to read your charts. This is the key to understanding the market behavior.

MACD is calculated by subtracting a slow exponential moving average (EMA) like 55 from a fast exponential moving average like 21. Signal line is calculated by the taking the EMA of MACD for a number of bars like 8. The Histogram is the difference between the MACD and its signal line. 55 and 21 are the number of periods that you use.

MACD is one of the most popular indicators used by forex traders. However, beware that MACD is often misused. Like any other technical indicator you should use it in combination with other technical indicators.

Crossovers: A crossover happens when MACD falls below or rises above the signal line. When MACD rises above the signal line from below, it is a bullish signal. It indicates that you should buy. Conversely, when MACD falls from above, it is a bearish signal. It indicates the time to sell.

Divergence: When the price diverges from MACD, it indicates the end of the current trend. Negative Divergence is when the price action is rising and MACD is falling. Both the price action line and the MACD line are diverging. It is an indication of the change in the currency trend. Thats right! The lagging indicator that is supposed to follow the price is predicting future behavior of the prices in the market.

Dramatic Expansion: Dramatic expansion occurs when the shorter moving average pulls away from the longer moving average. When MACD expands dramatically, it is an indication that the currency is overbought/ oversold and may return to normal soon.

One thing should be very clear. All the above three cases are important and should not be overlooked. However, none of them are signals for a trade. For example, MACD Divergence is tradable when confirmed by other indicators. If you simply start trading on MACD Divergence, it may not yield a profitable trade.

However, when confirmed by other technical indicators, success is more likely. This is because of the fact that several things are happening at the same time. Each is attracting the same bulls and bears into the trade that you are planning to make. So you have to confirm your finding with other technical indicators.

When you use MACD, crossovers and dramatic rises are easy to spot. However, spotting MACD divergence comes after a little practice. - 23200

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading and swing trading stocks and currencies. Learn Forex Nitty Gritty. Try Netpicks Forex Signal Service.

All About Forex Trading

By Bruno Stone

Oil, Gold and the foreign exchange are three different markets that have a lot in common. If you are into Forex trading, knowing what one does relative to another may give you an insight where the other markets may be going. It would be greatly advantageous to become familiar with those different markets as a trader and have some Forex education.

Let's have a look at those markets and how they are all interconnected.

There is an inverse correlation for markets such as gold or oil that are priced in U.S. dollars in the commodities markets. When the U.S. dollar loses value, not only do foreign currencies go up, but gold prices also rise. Studies have shown a negative correlation between gold and the dollar that is, they almost never move in tandem, but almost always move in opposed directions.

The value of EUR/USD versus gold, on the other hand, shows a very high positive correlation, this means that the value of the euro and gold prices often go hand-in-hand, suggesting these markets are both beneficiaries when funds are flowing away from the U.S. dollar.

Gold prices may be considered as an important indicator in the analysis of the forex market. A trend change in gold price may give a good indication to where the US dollar may be heading in the Forex market.

A rise in crude prices directly relates to a weakness in the dollar. Foreign oil producers view the increase in oil prices as a way to maintain their purchasing power in U.S. dollar terms. Forex brokers will tell you to counter the impact of higher oil prices a weaker dollar could ultimately give rise to inflation.

Oil is a key commodity causing global economic growth, and oil prices and the foreign exchange have a key relationship in the global economy.

Now lets have a look at the impact an increase in the oil price may have on the different major trading currencies around the world.

Japan: Economy suffers as it relies on imports for most of its energy needs, therefore the Yen weakens.

UK: Benefit the economy as UK produces oil. British pound strengthens.

Oil in world business has a heavy impact on the Forex market. Thus any disturbance in supply is likely to affect the foreign exchange market.

Some of these factors may be terrorist attacks, natural disasters and wars. In such times a shift from the dollar to the euro as the designated currency in crude oil could occur thus causing an immediate decline in the value of the U.S. dollar.

Gold and oil are not the only commodities affected by changes in forex values. Exports of agricultural commodities account for a large share of U.S. farm income.

When the value of the dollar rises, it tends to limit buying interest from an importing nation as the commodity becomes too expensive in terms of that nation's domestic currency.

When the value of the dollar declines, it reduces the price to an importing nation in terms of its currency and encourages it to buy more U.S. agricultural products. The influence that one market has on another market naturally shifts over time so these relationships are not static but should be the subject of ongoing study.

You as a Forex trader should be aware of the influence that those different markets have on the Forex. Though the changes may not happen quickly, it may however tip you off on any possible trend changes in the near future. Happy trading ! - 23200

About the Author:

For more information about forex trading and to get a forex eduction, visit http://www.forex-trading-domain.com/

Forex Courses - What's Important to You?

By John Templeton

I know that if you are contemplating about purchasing a forex trading course, you will surely not run out of available options, as there are hundreds on the market. There are plenty for every kind of trader. It makes no difference if you like forex scalping, where you buy and sell a currency pair several times in a day, or you consider yourself a long term, position trader.

The real important thing you should be asking is what am I actually going to learn if I were to purchase this course? Are you just going to get the same generic rhetoric that you normally get in more forex communities or is this course really going to help me to accomplish my dream of making a living in the forex market by having a deeper understanding of it.

The biggest problem today with most modern forex courses is the fact that they just don't do a particular good job of taking the time to explain to their customer a deeper understanding of the currency markets. All they usually tell you to do is toss a couple of indicators on a chart, as if that's going to solve anything.

There are so many things wrong with this that I don't even know where to begin.

Let's start with the obvious, shall we? Every single indicator is lagging by nature. What this means, if you are not sure, is that you are trading off of information that has already happened. Does that make any sense?

Also, not to be blunt, but what in the world are these indicators actually telling you? Look at the stochastics indicator. With this indicator, you are supposed to know whether the market is overbought or oversold.

My question is do you truthfully believe that most traders can even comprehend what it means for currencies to overbought or oversold? I dont think so. Most traders just see Stochastics as a bunch of random colors and lines going up and down.

So back to the original question: What exactly are you learning from the course. - 23200

About the Author:

If you want to know more about a how to trade forex course, then you definitely want to check out making money trading forex.

Forex Education for Beginners: The Forex Market

By Bart Icles

There are a lot of websites today that offer forex education but only a small number are free and not all of them are worth reading. As the forex market attracts more and more investors, more and more people are looking for ways to understand the basics of this lucrative market. However, they often find themselves lost in forex education online materials.

To start your forex education, you must first have an understanding of what forex is. Forex is a term used to refer to the foreign exchange or currency exchange market, which is deemed the largest financial market in the world. It is also the real-time buying of one currency and selling of another. Currencies are often traded to be able to buy and sell products and services in some foreign country. They are also traded so that profits made in foreign currencies can be converted into the domestic currency. Others trade currencies for profit. Investors who engage in this kind of currency trading are often called "speculators".

Most speculators believe that the best trading opportunities are posed by the most commonly traded currencies that are referred to as "majors". The majors are also often the most liquid currencies. In the forex market, currencies are traded in pairs. Popular currency pairs include EUR/USD or Euro and US Dollars, and USD/JPY or US Dollars and Japanese Yen.

Each day, forex trading begins in Sydney and moves around the world as each day begins in other financial centers like Tokyo, Singapore, London, and New York. This enables the forex market to operate 24 hours a day for five days a week. In turn, investors are able to conduct business and respond to fluctuations in the value of currencies in real-time, may it be day or night. The forex market is also considered as an over the counter or an inter-bank market. Forex transactions are typically made between two counterparts through an electronic network or the telephone. This manner of exchange decentralizes forex transactions, which is very unlike of stock markets and futures markets.

There are still many other things that a would-be forex investor needs to learn. After having an idea of what the forex market is and how it works, it is essential to learn how to read forex quotes and how they work. A good forex education would also enable a new investor to familiarize himself more with the different forex jargons and the important things to learn about margin trading. - 23200

About the Author:

Using forex signals starts with a desire to learn and a drive to become a great trader. Learning to use a forex signal is a powerful technique, it takes a good teacher and mentor. But once you learn how to trade using them your life will change and you have options and financial resources you never had before.

Online Forex Investment Tools

By Bart Icles

If you are already doing active Forex trading but haven't yet tried a free Forex Buy/Sell Indicator, then may you want to try this very useful tool to help you keep constant track of Forex price variations. This can you give vital information on currency trading as it happens, and will aid you in determining what course of actions to take on particular deals you are currently involved in, or for your future trading investments.

With a Forex Buy/Sell Indicator, you are ensured that you have all the facts at your disposal, and you don't have to rely on unreliable guesswork to influence your decision making processes; with this application, you are always assured that all your trading actions are based on solid, hard facts, backed by relevant, and historical data giving you utmost confidence and convenience in your trading business.

The Internet is teeming with many websites offering free Forex Buy/Sell Indicators for you to choose from. These sites provides the specific software to help you decide whether to buy, sell, or to stay on a particular pair you are presently trading in.With the variety of choices available, you can easily try them out, and find one which is best for you and your particular needs.

One of the more popular software for Forex Buy/Sell indication is the Doubling Stocks which, other than helping you in making trade decisions, it allows you complete personal control over the trade transactions involved. Since this is not one of those automatons, you will have the assurance that whatever decisions need to be done are done by yourself and no one else. This software comes with a free trial demo package, complete and detailed in every aspect fit for beginners and experienced traders alike.

Besides these free Forex indicators, you can also find more relevant sites which offers similar yet with better features software applications for a price. The software's that are being provided are much more superior and with more additional features not available in the free sites. One such popular application is the Forex Autopilot or FAPS, which is an automated trade application software that works in tandem with you. All that is required from you is to input the basic parameters in your chosen trade and the robot will take it from there.

Whatever you decide, it's always a wise move to try out all Forex Buy/Sell Indicators, free or for purchase, and Forex Robots before finally deciding what software to use in your actual trading. This way you can judge which one gives you the most accurate and correct data thereby giving you the freedom and confidence to trade profitably in the currency market. - 23200

About the Author:

How do you become a phenomenal forex trader? Also, come learn how to determine if forex day trading is for you.