CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

MACD - Moving Average Convergence Divergence

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  • The MACD stands for Moving Average Convergence Divergence.
  • The MACD is a trend following momentum indicator.
  • The MACD is widely used by technical analysts to spot price trends and new trade opportunities.
  • It was developed in the late 1970’s by Gerald Appel.

The MACD indicator shows the difference between two exponential moving averages; thus it is calculated by subtracting the 26 period exponential moving average (EMA) from the 12 period EMA. Additionally, a 9-period EMA of the MACD itself is formed as a signal line.

MACD1.png

Source: xStation

There are various ways of how the MACD indicator may be utilised, but one of the simplest ones is based on the crossovers between the MACD line (orange line) and the signal line (red line).

Buy signals are generated when the MACD line crosses over the signal line from the bottom, and sell signals are generated when the MACD line crosses over the signal line from the top.

MACD2.png

Source: xStation

In the above screen, two examples of buy signals and three signals of sell signals were generated by the indicator.

Similarly to other indicators, oscillators and various technical analysis tools, the MACD tends to generate false signals. In order to decrease the probability of generating sell false signals, the MACD may be used with other tools. When all the used technical tools indicate the same direction for the market, then this increases the probability of the success of the trade.

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This content has been created by X-Trade Brokers Dom Maklerski S.A. This service is provided by X-Trade Brokers Dom Maklerski S.A. (X-Trade Brokers Brokerage House joint-stock company), with its registered office in Warsaw, at Ogrodowa 58, 00-876 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. X-Trade Brokers Dom Maklerski S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.