Introduction to the MACD Divergence Indicator
Table of Contents
- 1 Introduction to the MACD Divergence Indicator
- 2 What is the MACD Divergence Indicator?
- 3 How the MACD Divergence Indicator Works?
- 4 How to use the MACD Divergence Indicator for MT5
- 5 Conclusion
Divergences are basically differences on the height or depth of a peak or dip of an oscillator when compared to price action. These disagreements between price action and its corresponding oscillator tend to eventually lead to a strong reversal. However, some oscillators tend to be more suitable for identifying divergence setups than others. The MACD is one of the oscillators that tend to work well as a basis for a divergence.
What is the MACD Divergence Indicator?
The MACD Divergence indicator is a modified version of the classic MACD indicator, which means Moving Average Convergence and Divergence. It has been modified to identify divergences based on the MACD oscillator and plot lines and arrows to indicate the divergence and its indicated direction.
How the MACD Divergence Indicator Works?
The MACD line is computed by subtracting a slower Exponential Moving Average (EMA) line from a faster EMA line. The difference is then plotted as an oscillating line on a separate indicator window. A signal line is then derived from the MACD line, which is a Simple Moving Average (SMA) of the MACD line. The signal line is then overlaid on the indicator window to pair with MACD line.
The MACD Divergence indicator then compares the peaks and dips of the MACD line with the peaks and dips on price action. It then identifies divergences based on this comparison.
This indicator plots a line above price action indicating a bearish divergence, and a line below price action indicating a bullish divergence. It also plots arrows on the MACD line indicating the direction of the divergence signal.
How to use the MACD Divergence Indicator for MT5
This indicator has a set of basic MACD settings, which are the Fast EMA, Slow EMA, and Signal SMA. These variables are the number of bars used to compute for the underlying moving average lines.
It also has some indicator settings which allow for visual modifications. It allows traders to toggle price trend lines, as well as indicator trend lines on or off. It also allows traders to toggle alerts on or off on the “Display Alert” option.
The divergences identified by this indicator can be used as a reversal trade signal. However, these signals are best used in confluence with a long-term trend or other reversal trade setups.
Buy Trade Setup
When to Enter?
Open a buy order on a confluence of a bullish reversal price action and a bullish divergence identified by the MACD Divergence indicator. Set the stop loss on the support below the entry candle.
When to Exit?
Set the take profit on the next resistance level.
Sell Trade Setup
When to Enter?
Open a sell order on a confluence of a bearish reversal price action and a bearish divergence identified by the MACD Divergence indicator. Set the stop loss on the resistance above the entry candle.
When to Exit?
Set the take profit on the next support level.
Many seasoned traders use divergences between the MACD and price action as a basis for their reversal setups. Some would even trade MACD divergences exclusively. However, most new traders tend to second guess themselves when trying to identify MACD divergences. The MACD Divergence indicator is a tool that can help new traders identify trading opportunities based on MACD divergences.
MT5 Indicators – Download Instructions
MACD Divergence Indicator for MT5 is a Metatrader 5 (MT5) indicator and the essence of this technical indicator is to transform the accumulated history data.
MACD Divergence Indicator for MT5 provides for an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.
Based on this information, traders can assume further price movement and adjust their strategy accordingly. Click here for MT5 Strategies
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How to install MACD Divergence Indicator for MT5.mq5 to your MetaTrader 5 Chart?
- Download MACD Divergence Indicator for MT5.mq5
- Copy MACD Divergence Indicator for MT5.mq5 to your Metatrader 5 Directory / experts / indicators /
- Start or restart your Metatrader 5 Client
- Select Chart and Timeframe where you want to test your mt5 indicator
- Search “Custom Indicators” in your Navigator mostly left in your Metatrader 5 Client
- Right click on MACD Divergence Indicator for MT5.mq5
- Attach to a chart
- Modify settings or press ok
- Indicator MACD Divergence Indicator for MT5.mq4 is available on your Chart
How to remove MACD Divergence Indicator for MT5.mq5 from your Metatrader 5 Chart?
- Select the Chart where is the Indicator running in your Metatrader 5 Client
- Right click into the Chart
- “Indicators list”
- Select the Indicator and delete
MACD Divergence Indicator for MT5 (Free Download)
Click here below to download: