How to use MACD indicator in forex trading?

Trading | 2 months ago


How to use MACD indicator in forex trading? - tradeglobalmarket

Forex Trading involves the speculation of currencies from different countries against each other to make a profit. For example, the US Dollar against the Japanese yen. A trader uses different technical indicators and fundamental analysis to forecast the rise or fall of the currency in order to maximize the profit. In this article we will discuss how to use MACD indicator in forex trading.

How To Use MACD Indicator In Forex Trading

We will discuss how to use MACD indicator in any timeframe, when to buy, when to sell and how to book profit.

What is MACD indicator?

MACD stands for moving average convergence divergence. The MACD indicator is a simple trend following momentum indicator that shows the relationship between two moving averages of the underlying financial asset. It is calculated using a simple method by subtracting the 26-period exponential moving average from the 12-period exponential moving average.

The result is plotted on the chart with the help of blue line, this is called the MACD line. The red line here is a simple nine period moving average of the MACD line. It is known as the signal line. The signal line can be used as a trigger to activate buy or sell trades.

What is the best time frame to trade with MACD indicator?

One can use the MACD indicator on any time frame but a higher time frame trade setup is often reducing the noise in the market and provides more reliable signals. So, one must use the MACD indicator with hourly or daily chart.

When to place the buy order?

Place a buy order when the MACD line crosses above the signal line. Keep your stop loss below the support level. Also keep your take profit targets at 1:2 risk to reward ratio.

When to exit the buy order?

Exit the long position (square off) when the stop loss is triggered or take profit target is achieved.

When to place the sell order?

Place a sell order when the MACD line crosses below the signal line. Dp not forget to keep your stop loss above the resistance level. Also keep your take profit targets at 1:2 risk to reward ratio.

When to exit the sell order?

Exit the short position (square off) when the stop loss is triggered or take profit target is achieved.

 

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