MACD stands for Moving Average Convergence Divergence. This indicator identifies moving averages that indicate a new trend. The MACD indicator has three major components.

        ● The Signal Line is the MACD Line’s moving average.

        ● The MACD Line shows the difference between two moving averages.

        ● The Histogram represents the distance between the Signal Line and the MACD Line.

The histogram enlarges when the two moving averages separate. This separation is a MACD divergence, as the moving averages are diverging or moving away from each other.

On the other hand, as the moving averages come closer to each other, the histogram shrinks. This move makes a convergence because the moving averages are “converging” or getting closer to each other.

BUY SETUP

For the buy setup,

        ● Wait for a bullish crossover. It occurs when the MACD Line crosses above the Signal Line.

        ● Place your entry on the candle after the crossover

        ● Place your stop loss slightly below the previous low.

        ● Exit the trade when the MACD Line crosses back below the Signal Line or depending on your strategy.

SELL SETUP

For the sell setup,

        ● Wait for a bearish crossover. It is when the MACD Line crosses below the Signal Line.

        ● Enter on the candle after the crossover.

        ● Place your stop loss slightly above the previous high.

        ● Hold on to the trade until the MACD Line crosses above the Signal Line.

                                                   

CONCLUSION

The MACD indicator is a good technical analysis tool that shows the start of new trends. It combines fast and slow moving averages that converge and diverge depending on the market movement.

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