This post is also available in: Indonesia Português العربية
The Olymp Trade MACD (Moving Average Convergence/Divergence) is a helpful indicator for traders who prefer technical analysis to fundamentals. It enables them to work out estimates and anticipate fluctuations in the value of their instruments. MACD was first described in 1979 in Gerald Appel’s book “Systems and Forecasts”. In 1986, Thomas Esprey developed a histogram for it.
Signals and entry points
MACD is multifaceted — it is an oscillator and a trend-following indicator. As a result, it generates a diverse range of signals for market entry. The basic ones include:
- Crossing the signal line;
- Crossing the zero line;
Crossing the signal line of the indicatorr
This signal is the most popular and widely used one. It appears when the MACD line intersects with the signal line. The type of crossover defines the type of signal:
- Bullish: the intersection between the MACD line and the signal line is directed up;
- Bearish: the intersection between the MACD line and the signal line is directed down.
In these scenarios, the value on the histogram is zero. It shows that there is no difference between the two lines.
Crossing the zero line of the indicator
When the MACD line intersects with the zero line of the indicator, this also generates signals of two types. Here is how they look:
- Bullish: MACD intersecting the zero line going up (above zero).
- Bearish: MACD intersecting the zero line going down (below zero).
The term “divergence” describes the discrepancy between the price chart and where the indicator is headed. If an instrument reaches a higher high but the Olymp Trade MACD line does not support it — instead, it forms a lower high — the divergence is bearish. When the lower low on the chart is not supported by the lower low of the MACD, the divergence is bullish.
All oscillators give off such signals. Generally, divergence shows that the movement has peaked out and the trend is fading, so a correction or reversal is likely. The bigger the time frame, the stronger the signal. This universal rule applies to MACD, too.
Instead of two local maxima/minima, divergence may be formed with three or more. Therefore, it is not possible to determine the exact point of reversal in this fashion. Instead of turning around, the trend may just level off. Do not expect divergence/convergence to provide some miracle clues — they merely show that the trend is losing strength. These phenomena can confirm patterns in technical analysis, such as head and shoulders or a double top.