MACD

Learn Techical analysis ( MACD) forex Market:
MACD may be interpreted similarly to other moving averages and used as a trend-following indicator. That is, when the MACD crosses above the MACD signal line, it's a bullish signal, and conversely, when the MACD crosses below the MACD signal line, a downtrend may be beginning and the signal is bearish.
Its default settings are usually 26, 12, 9 and its components are:
1. The MACD line which takes a short length and a long length exponential moving average (defaulted to 12 and 26) and calculates the difference between these two averages.
2. A signal line which is then derived by calculating an exponential moving average of the MACD line. This is plotted as the MACD signal.
3. The third element is the median line also called 'zero line' or 'center line'.
The MACD moves around a center line and it has not upper or lower limits as other oscillators have. It is thus called an 'open oscillator'. The median line represents the point at which the moving averages are equal.
If the EMAs which compose the MACD cross a bearish signal, the indicator translates it into a simultaneous bearish crossing of the MACD line with its median line. And vice versa, when the MACD line crosses its median line to the upside, this means the two EMAs built in the indicator are crossing upwards.
4. Finally, the difference between the MACD and the MACD signal line is calculated and plotted in a histogram.


If you are going to use the MACD, don't exclude the histogram. On occasion, the MACD itself may be following the price nicely, but the histogram can alert the trained analyst that a turn in price is in the air by giving signs of divergence. What a divergence is will be explained further below.

The same dilemma as for the moving averages applies for the MACD: shorter moving averages will be more sensitive and generate more crosses, and longer moving averages will always lag price and generate fewer signals.
Why then not change its default settings and do something creative with the MACD? The signals provided with the settings 36,81,18 may be few, but are they therefore less reliable? Note how the below settings evidence the start of a trend when the MACD line crossover is close to its median line. You may ask where this weird numbers are coming from. The answer is that they are multiples of 9.
The MACD is based on the concept of convergence-divergence. But what is the convergence-divergence of a moving average? We have said the MACD consists of two exponential moving averages that range around the median line. The result is an indicator that oscillates above and below that line.

When the MACD is above the median line, this means the 12-period moving average is above the 26-period moving average, indicating that recent prices are higher than the previous ones.
Conversely, when the MACD is below the median line, it means the 12-period moving average has a value of less than 26 periods, indicating that prices are falling.
In other words, the bigger the spread between the two EMAs taken into the equation of the MACD line is, the more distance the indicator will print to its median line.
When a currency pair is volatile, all elements of the MACD show broad movements on both sides of the median line. However, when the market is calm, moving averages converge and the MACD lines consolidate as well.
These feature make the MACD indicator useful to measure volatility and market sentiment. Notice how each volatility boost starts after a period of consolidation. fxstreet.com