When it comes to trading, not all technical indicators are created equal. Some are reserved for particular circumstances, some are reserved for derivatives traders, and yet others are likely to be regulars on the screens of most technical traders.
A good forex indicator is widely used by traders, gives out alerts and information that can be easily watched and traded on, and helps traders predict where prices will go next.
The moving average convergence divergence is one of the most often used and beneficial methods for confirming a trend (MACD). This indicator begins by comparing the gaps between two exponentially smoothed moving averages. The deviation is then smoothed before being compared to its own moving average.
The Moving Average Convergence Divergence (MACD) indicator was invented by Gerald Appel. The MACD histogram is unbounded, and it generally appears below the price action and uses the same time scale as the exchange rate chart it corresponds to.
The MACD is based on the difference between 2 exponentially weighted moving averages (EMAs), usually a faster 1 of 12 periods and a slower 1 of 26 periods. It includes a smoothed moving average (SMA) line of usually 9 periods used to signal trades.
When the current smoothed average is above its own moving average, the histogram at the bottom of the chart below is positive, and an uptrend is confirmed. On the flip side, when the current smoothed average is below its moving average, the histogram at the bottom of the figure below is negative, and a downtrend is confirmed.
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