MACD Indicator MT4 With Two Lines- Understanding And How To Trade
As you know, the MACD indicator in MetaTrader has only a histogram and one line instead of two lines as we can see in theory. In this article, we will offer you to download the MACD indicator with two lines and we will talk about this indicator.
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The world of trading has grown exponentially with the advent of the internet and online trading platforms. Nowadays, there are a dizzying amount of indicators, and yet MACD is still one of the popular among experienced traders. In this article, you will learn what the MACD indicator is all about, and how you can trade it or incorporate it into your current trading strategy.
What Is The MACD Indicator
MACD stands for Moving Average Convergence Divergence. It’s generally considered as an indicator belonging to the oscillator family, and it’s been around before the boom of online trading. In fact, this indicator was developed by Gerald Appel during the 1970s.
When you first look at the MACD indicator, it can be confusing. This is understandable as it is usually presented in another window with bars and two lines. Before you can trade the MACD, you will need to learn what those lines and bars represent.
The bars and lines that you see in the MACD indicator are derived from its numerical settings. The “standard” setting is 12,26,9. These numbers are derived from the old days in which trading sessions was six days a week. And, the standard MACD settings represented price movements of one and a half, two and four weeks. These days, typical trading sessions is now five days a week. Hence, it’s possible to adjust the “standard” setting to adapt it to today’s trading environment. And yet, its also possible to use the “standard” settings as its what’s most commonly used by traders, and that’s is usually a good thing in trading. From these settings, the MACD indicator mt4 with two lines and bars are then produced.
First, put your focus on the two lines that typically oscillate within the confines of the indicator window. MACD is basically an EMA with a twist. Plenty of traders use two EMA’s as part of their trading. Usually, there’s the fast one and the slow one. Using two EMAs aims to identify the overall trend better or it may even signal entry or exit.
The MACD builts upon this concept as it still incorporates a slow and fast line. However, it has a unique twist. Do you remember the setting mentioned above (12,26,9)? Well, the fast line is produced by subtracting the 26 EMA with the 12 EMA. For the slow line, it merely uses the value of the 9 EMA.
To produce the bars, take note of the 9 EMA, which is considered as the slow line. Next, observe how the fast line goes up and down the slow line. Imagine that you stretch the 9 EMA into a straight line, and while doing so, the fast line will also ‘contort’ along with it. Then represent that contorted line in the forms of bars, and that’s how you get the iconic MACD bars, or also known as histograms. Now that you understand how the MACD is produced, you have a better way of understanding how to trade with it.
You can read more about the best MACD settings for intraday trading in our article.
Trading With MACD Indicator MT4 With Two Lines
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Keep in mind that at the end of the day, the MACD is not a magic bullet. It is just a tool that will help you with your trading. This means that how you use this tool is up to you, and there is no right or wrong way of using this indicator. However, this article will show you the basic ways of trading the two MACD lines and other strategies.
What you do is to use the fast and slow line crossovers as a signal for entries and exits. For example, if you want to go long, you wait for the fast line to come from below, crossover to the top of the slow line and enter a “buy” position. To exit, wait for the fast line to crossover towards the bottom side. This is perhaps the most basic way of trading the MACD, but here’s the thing.
Another useful attribute of the MACD indicator is its ability to gauge the momentum of the price, which is the reason why this indicator is common among momentum traders. To have a better idea of the price momentum, you’d want to refer to the MACD bars.
The longer the bar, the more momentum the price has. What’s neat about this is that you can compare the current bar’s momentum and refer it to the previous bar or bars for easily eyeballing momentum strength or weakness. For example, if the current bar is longer than the previous bar and the previous bar is longer than the one the precedes it, then you can say that the price is gaining momentum. This indicates that this momentum trend is likely to continue until it shows signs of weakness. If the opposite happens and the bar gets shorter and shorter, then you can say the price momentum is getting weaker. But the MACD indicator has another attribute that sets it apart from other indicators, and that’s the divergence and convergence.
The longer the bar, the more momentum the price has. What’s neat about this is that you can compare the current bar’s momentum and refer it to the previous bar or bars for easily eyeballing momentum strength or weakness. For example, if the current bar is longer the than the previous bar and the previous bar is longer than the one the precedes it, then you can say that the price is gaining momentum. This indicates that this momentum trend is likely to continue until it shows signs of weakness. If the opposite happens and the bar gets shorter and shorter, then you can say the price momentum is getting weaker. But the MACD indicator has another attribute that sets it apart from other indicators, and that’s the divergence and convergence.
The easy way of understanding convergence and divergence is by referring to the price trend and the histogram. For example, the price swing high of the short-term trend is going higher and higher. However, if you look at the peaks of the histogram, it’s going lower and lower. This is what is called a divergence.
On the other hand, if the price swing lows of the short-term trend are going lower and lower, but the troughs of the histogram are going higher and higher, then this is described as convergence.
The appearance of divergence and convergence may be a signal that a possible trend change is coming. Thus, you may want to make positions that is a counter to the current short term trend. Entering a position before a price move is usually considered as a “leading” strategy, as opposed to a “lagging” strategy.
Wrapping It All Up
The MACD is an indicator that can trace its roots back before computers and online trading became popular. You can say that its a useful tool as it stood the test of time. The beauty of the MACD indicator is that it can be used as a “lagging” indicator and a “leading” indicator. Such an attribute is what sets it apart from most of the technical indicators out there.