Introduction to the MACD 2 Indicator
The MACD is a widely used technical indicator that is used by many seasoned traders. Let us explore how the MACD 2 can be used to identify potential trade opportunities.
What is the MACD 2 Indicator?
The MACD 2 Indicator is a Moving Average Convergence and Divergence (MACD) indicator. It is a momentum technical indicator which is based on the concept of the crossing over of moving average lines.
This indicator plots a MACD line and a signal line wherein the area between the two lines would change color depending on the direction of the trend.
It also plots histogram bars which also changes color depending on whether the trend is gaining momentum or is starting to weaken.
How the MACD 2 Indicator Works?
The MACD 2 indicator has two underlying Exponential Moving Average (EMA) lines. It then computes for the difference between the fast EMA line and the slow EMA line. The difference is then plotted on the MACD 2 window as the MACD line. It also computes for a Simple Moving Average (SMA) derived from the MACD line, which is then plotted as the signal line.
The MACD 2 indicator shades the area between the MACD line and the signal line lime whenever the MACD line is above the signal line, and pink whenever the MACD line is below the signal line.
The histogram bars are basically the difference between the MACD line and the signal line. This indicator plots violet bars whenever the bars are positive and rising indicating a strengthening bullish trend, sky-blue bars whenever the bars are positive and decreasing indicating a weakening bullish trend, maroon bars whenever the bars are negative and decreasing indicating a strengthening bearish trend, and pink bars whenever the bars are negative and rising indicating a weakening bearish trend.
How to use the MACD 2 Indicator for MT5
The MACD 2 indicator has a few variables that can be tweaked.
“FastMACD” refers to the number of periods for the underlying fast EMA line, while “Slow MACD” refers to the number of periods for its corresponding slow EMA line.
“SignalMACD” refers to the number of periods used to compute for the SMA of the MACD line, which is the signal line.
“PriceMACD” refers to the source of the price data from each bar.
The MACD line can be used as a trend direction filter as it tends to be positive whenever the trend is bullish, and negative whenever the trend is bearish.
The crossing over of the MACD line and the signal line or the shifting of the histogram bars over zero can also be used as a trend reversal signal.
As an oscillator, the MACD 2 indicator can also be used for divergences using the MACD line.
Buy Trade Setup
When to Enter?
Observe a bullish divergence based on the MACD line. Open a buy order as the MACD line crosses above the signal line. Set the stop loss below the entry candle.
When to Exit?
Close the trade as soon as the MACD line crosses below the signal line.
Sell Trade Setup
When to Enter?
Observe a bearish divergence based on the MACD line. Open a sell order as the MACD line crosses below the signal line. Set the stop loss above the entry candle.
When to Exit?
Close the trade as soon as the MACD line crosses above the signal line.
Conclusion
The MACD is a classic oscillator which traders use for identifying trend reversal opportunities. This could be a useful technical indicator to master.
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MACD-2 – indicator for MetaTrader 5