All you need to know to understand the importance of the MACD indicator as a potential in discovering and deciphering market highs and lows along with predicting strong swings in market trend changes for forex traders, futures and stock traders.
The MACD, or Moving Average Convergence Divergence, was developed and instituted in the nineteen seventies by Gerald Appel. The MACD indicator has become extremely prevalent as a technical indicator for the momentum of the markets to help verify that an upward or downward trend has ultimately dwindled and will either retrace or come back around again.
Answering the question of what is the MACD indicator is a display of market trends direction, momentum, strength, and duration in terms of closing stock prices. The MACD indicator historical data is laid out in three separate but comparable collections of series of time. The first is proper, the second is the average, and finally the third is the divergence series which is the difference between the series proper and the average.
The full MACD indicator uses a twelve or twenty-four day’s series of mathematical exponents of moving averages. Most feature a line for the actual indicator with a superimposed moving trigger average overlaid on the indicator line. The intersecting indicators tell one to buy, sell or re-enter into the market.
The histogram MACD indicator allows for easier views into the baseline or zero line. Bylines are continuously moving either farther away or closer to the zero lines, and you can tell which stocks averages are diverging or converging. The taller the lines grow, the more divergence or increasing divergence in the stock prices which means most likely the trend with continue. The shorter the lines signals a change as the averages converge on each other.
One of the most important benefits of the MACD indicator is because of the inherent trend mapping it will most likely not be inconsistent or unreliable for any length of time. With the moving averages confirming that the indicator is following the underlying securities movement’s helps keep the momentum and trends consistent.
Other benefits of the MACD Indicator are that because the MACD indicates the convergence and divergence of two indicators, it can predict, over weeks, months or even days, the movements of securities. With the ability of foreshadowing, allows for traders, stock brokers and futures predictions in trend changes dependent on either the convergence or divergence.
For example, if the MACD indicator predicts a negative divergence, then the bullish market in subsiding and it can be predicted that the market trend will enter into the bearish within weeks. Each security can be individually tracked with specific objectives, trading styles and speeds of averages over any length of time.
The MACD Indicator has become a popular source of predicting market trends in today’s financial world. It should be noted that even though most times the benefits of the MACD indicator are predominant, a surprise could come along and make the whole thing irrelevant and the lag becomes much more prominent.