Here we are continuing our No Bullshit Forex Curriculum with our first indicator, MACD (Moving Average Convergence/ Divergence) to be added to our demo platform, Meta Trader 4.
In actual fact, there are tonnes of MACD tutorials out there which we will be referencing to later if you still do not understand it after this tutorial.
Introduction to MACD
Taken from stockschart on the history of MACD
Developed by Gerald Appel, Moving Average Convergence/Divergence (MACD) is one of the simplest and most reliable indicators available. MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics.
These lagging indicators are turned into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits. MACD is a centered oscillator and the guidelines for using centered oscillators apply.
MACD is an oscillator indicator that calculates the difference between 26 and 12 days of exponential moving average (EMA – We’ll cover it on the next few tutorials), and is widely popular among most financial instruments like the stock market, futures, forex and more.
Let’s get on with adding MACD to your demo as continued from the previous lesson on Customising MetaTrader 4 Colors, Saving & Loading Template.
Adding MACD to Meta Trader 4
Whip up any charts on your Meta Trader 4, click on Insert -> Indicators -> Oscillators -> MACD
The MACD options will appear. The default settings are as follow, Fast EMA: 12, Slow EMA: 26, MACD SMA: 9. You need not change any settings to it, just click OK.
There you go! MACD is on your chart!
If you would like MACD to be part of your template, save it up with Customising MT4 Colors, Saving & Loading Template tutorial. The next time you open a chart and load the newly saved template, MACD will be loaded with the colors you like.
Note that it works for any other indicators as well.
How to Read MACD
Look at the chart below and the arrows pointing. MACD is a lagging indicator and works best with longer duration charts especially with 4 hours and above type. Notice when MACD indicator crosses the neutral line towards the upside, the candle follows as well, forming a synchronized pattern.
There are times when it doesn’t and we’ll have to look out for them. When both the candlestick action and MACD indicator movements isn’t synchronous, we call it this a divergence.
You can read more about trading divergence in BabyPIPS here, or stick with us when we discuss more about trading MACD divergence in the next blog entry.
Disadvantage of MACD
It is a really lagging indicator and not a very good indicator for identifying overbought or oversold levels. Since there are no upper or lower limit to bind the movements, they can extend beyond extreme ends.
Couple MACD with other indicators for good results
I have a few indicators to aid me in my trades, though I know a few people who can plainly just rely on MACD and price action for trading. Well, to each its own.
We will cover some of the popular trading methods after covering MACD divergence trading and a few more indicators.
Other Good Resources on MACD
- StockCharts MACD Tutorial
- Alpari Trend Indicators – MACD
- Investopedia’s MACD tutorial
If someone wants to use in MT4 the MACD indicator as it appears in other brokers with 2 emas inside, you can download it from here:
http://noponzi.com/indicators/IMACD.mq4
Place the indicator in the folder experts/indicators and reboot your MT4.
Ooh Jose, Thank you for sharing this one
I’ll write a tutorial on adding additional indicators to Meta Trader 4 as well, pop by and drop whatever additional ones you are using alright?
Thanks for mentioning that Jose… I was wondering where the 2nd EMA line was!
I would be grateful if someone would show how to add an EMA to the separate indicator windows as I have been wracking my brains for ages trying to work out how it’s done – to no avail! Thanks, Jose (and Nobsforex for what will be a very useful lesson).
I’ll work on it later
Hello. I’m looking for a MACD to add to my MT4 chart which has two lines for cross over. A two lind MACD doesn’t appear to be available in the indacators list. Do you know where to down load one. Thanks
helo, i’ve the mq4 for MACD two lines, please skype me at wtforex
and we shall be talk futher, and be frens