Spotting Trends with MACD

When you trade forex, sometimes keeping the analysis simple is so much better. Complicated technical indicators may be able to help you trade, but you can make similarly good trades using simple indicators and simple analysis. In this article, we are going to talk about how you can spot trends using nothing but the MACD oscillator and one additional exponential moving average for confirmation.

The first thing you need to do is set up your MACD indicator. If you are trading on longer timeframe, the best combination would be 12- and 26-day moving averages, while day traders may want to opt for 7- and 18-day moving average instead. With the indicator properly set up, you can now analyze trends using several simple theories. A 9-day exponential moving average is added as a momentum line so that you can confirm trends easily.

If you see the MACD line crosses the momentum line upwards, you are looking at an upward trend or a bullish; a possible reversal of the current bearish is also possible. To confirm the trend, check the signal line’s current direction and the position of the two lines — if they are under the 0 signal line, than the trend can be quite strong. You can also spot trend reversals by seeking for divergences in strength as measured by the MACD channel, or in other words the distance between two lines.

Combine this simple analysis with your own trading formula, and you can enjoy profitable trades. Just keep it simple and catch trend changes properly.