MACD line is one of the effective technical analysis indicators that any investor needs to understand. This indicator helps investors grasp market fluctuations and find opportunities to sell or buy to bring the highest profit. If you still have many questions about **what is MACD**, the article below from **Learn Forex Trading** is for you.

## Concept of MACD

MACD is a lagging indicator commonly used in technical analysis, developed by Gerald Appel in 1979.

Gerald Appelis a professional asset manager. He has been a professional asset manager for over 35 years.

In addition to being a professional investment advisor, he is also the author or co-author of more than 15 books, as well as many articles, related to investment strategy. He is a recognized expert in the field of technical market analysis.

MACD indicator stands for Moving Average Convergence Divergence ( Moving Average Convergence Divergence).

Designed to reveal changes in the strength, direction, momentum, and duration of a trend.

Before going into effective ways to trade with MACD, of course, you also need to understand the structure and parameters of this indicator.

**See more: Forex is a great way to financial “billionaire”.**

## Structure of the MACD indicator

The default parameter is written as MACD (12, 26, close, 9).

Below is the default parameter image:

Where 12, 26, and 9 are the periods of the EMA lines.

Close represents the closing price for calculating the EMA.

From there, this indicator has 3 components:

*MACD line: take EMA 12 – EMA 26**Signal Line: EMA 9 of MACD Line**Histogram: get MACD Line – Signal Line*

## MACD indicator components

What indicator components are included in the MACD line? Below are the ingredients you need to pay attention to.

### What is the MACD line

**What is MACD** line? It is also called the MACD Line. Calculation formula:

MACD line = EMA 12 – EMA 26

Example of GBPUSD pair, frame D1:

In the example, at present, the EMA lines are valued at EMA 12 = 1.39479, and EMA 26 = 1.38981.

According to the value formula = 1.39479 – 1.38981 = 0.00623.

The MACD line is represented by a line chart segment connecting all calculated MACD line values. And of course, this line drawing process is completely automatic, which is the blue line in the picture.

Note: If EMA 12 is above EMA 26, the MACD line value is positive, whereas if EMA 12 is below EMA 26, the MACD line value is negative.

### Signal Street

Signal Line is also known as Signal Line. Signal line calculation formula:

Signal line = EMA 9 of MACD line

Normally, when we mention EMA 9, we often understand that we use PRICE to calculate EMA.

As for EMA 9 of the MACD line, it means taking the MACD VALUE to calculate the EMA (the value has the formula calculated above).

The Signal line is drawn automatically on trading platforms, shown as the orange line in the example above.

### Histogram

Histogram = MACD Line – Signal Line

Let’s look at the example to understand how to calculate:

Above we have calculated the current value of the MACD line = 0.00623 and the Signal line = 0.01161. So the current value of Histogram = 0.00623 – 0.01161 = – 0.00538.

BECAUSE Histogram = MACD Line – Signal Line, so if the MACD line is above the Signal line, the Histogram has a positive value, and vice versa.

At the intersection between the MACD line and the Signal line, the Histogram has value = 0.

## Parameters of the MACD indicator

Indicators can always adjust parameters to suit each person’s trading strategy.

MACD can also change parameters.

Currently, Forex traders always edit the default parameters to find the most optimal set of parameters for each indicator, including MACD.

But in my opinion, there is no best parameter.

We should focus on optimizing how to effectively trade the default indicator rather than finding the most optimal parameters for MACD.

## How to trade with MACD indicator

Trading with **what is MACD** indicator? If you don’t know, see the instructions below.

### Trade when the MACD line and Signal line intersect

This is the most basic way of trading with indicators that you may have heard of.

When the MACD line cuts the Signal line from top to bottom => SELL.

When the MACD line cuts the Signal line from the bottom up => BUY.

Let’s look at the USDCAD H4 frame example:

On the picture, mark the intersection points of the MACD line and the Signal line.

This formula is extremely simple and only takes a few minutes to understand and apply.

And because of the simplicity of this formula, the effectiveness is not high, there are many inaccurate trading signals and near the end of the trend.

### Trade when the Histogram changes from – to + and vice versa

Recipe:

When the Histogram changes from – to + (or from red to blue), then **BUY**.

When the Histogram changes from + to – (or from blue to red), then **SELL**.

Example USDCAD H4 frame:

You already know Histogram = MACD Line – Signal Line.

Most current online documents do not clearly state the components of the MACD indicator but only focus on trading methods, so you may not notice: that this formula and the first formula are essentially ONE.

And its effectiveness is of course the same as the first formula.

### Trade when MACD moves from – to + and vice versa

Recipe:

When MACD moves from – to + (or the MACD line crosses the zero axis from bottom to top), then BUY.

When MACD moves from + to – (or the MACD line crosses the zero axis from top to bottom), then SELL.

Example USDJPY H4 frame:

On the figure, mark the locations where the MACD line crosses the zero axis.

The vertical line is blue when MACD crosses zero, corresponding to a BUY order.

The vertical line is red when MACD crosses zero, corresponding to a SELL order.

For the first 3 formulas, the efficiency is not high in real transactions. Especially when trading small time frames (H1 and below), there are a lot of noise signals.

The above formulas have disadvantages:

- Only effective in markets with clear trends.
- The signal is slow, when this line crosses the Signal, the price has gone a long way, even at the end of the trend.

Therefore, the next MACD trading formula I want to introduce is much more effective:

### Use MACD on two timeframes

Specifically, you will need to identify the larger time frame trend and trade with that trend.

Suppose you trade on the H4 time frame, the larger time frame and need to determine the trend is the D1 frame.

Here are the transaction steps:

Step 1: Determine the trend of frame D1.

If the MACD line crosses the Signal line, the D1 trend is an uptrend => only look for BUY points on the H4 frame.

If the MACD line crosses the Signal line, the D1 trend is a downtrend => only look for the SELL point on the H4 frame.

Step 2: Find the entry point in the H4 frame.

Find BUY point: wait for MACD to cross Signal on the H4 frame.

Find the SELL point: wait for MACD to cut down to Signal on the H4 frame.

*Note: Do not look for an entry point on H4 that goes against the trend determined in Step 1.*

**For example:**

Step 1:Determine the trend of frame D1.

In this example, the MACD line cuts down to the Signal line on frame D1.

We will mark this intersection position with a blue vertical line as shown.

=> On the H4 frame, only look for SELL points.

Step 2:Find the entry point in the H4 frame.

The entry points for the SELL order on the H4 frame are the points where the MACD line crosses the Signal line.

SELL points are marked on the picture.

It can be seen that the effectiveness of this formula is quite good because we only trade WITHIN THE LARGER FRAME TREND.

**See more: Opening and verifying an ICMarkets account**

### Trading MACD divergence

Divergence trading is divided into 2 parts, the uptrend and the downtrend. Let’s find out more.

#### Trading MACD divergence in an uptrend

In an uptrend, the price creates a higher peak than the previous peak, but the next MACD peak is lower than the previous MACD peak.

The contradiction is explained that the strength of the trend is weakening and the market is about to reverse.

To trade divergence effectively, the following are the necessary steps and conditions:

Step 1: Wait for divergence to appear

MACD divergence in an uptrend is confirmed when the price creates a higher peak than the previous peak, but MACD creates a lower peak than the previous peak.

*Note: Divergence is only calculated when the MACD line crosses the Signal line.*

If the MACD line has not crossed the Signal line, it will not be considered a divergence, for example like this:

In this case, there is only the possibility of divergence. It is entirely possible that the MACD line continues to go up and does not cross the Signal line.

Most divergence traders enter orders right after the divergence appears, sometimes without even waiting for the confirmation signal (MACD cuts down to Signal).

Step 2:Draw a trendline in an uptrend

Draw a trendline for the current uptrend.

If there is a divergence but the price has not broken out of the trendline, do not trade.

Step 3:Wait for the trendline breakout signal

Wait for the signal to break out of the rising trendline => SELL.

This is the result when strictly following the above order entry conditions:

It can be seen that this way of trading is much more effective than just waiting for MACD divergence to trade.

In addition to the trendline, you can combine support and resistance at the peak/bottom area where divergence appears.

**What is MACD** divergence in a downtrend

The steps are exactly similar to **what is MACD** divergence in an uptrend.

We will only give examples:

In addition to understanding the MACD indicator, to make trading easier, you should also learn more about **What is CFD** and **margin forex**. Hopefully, with the above sharing from **Learn Forex Trading, ** you have grasped **what is MACD** and know how to trade effectively with this indicator.