MACD indicator refers to trend indicators and is considered as one of the best technical indicators for analyzing charts of various financial assets.
The most widely used is its technical execution in the form of a histogram (rising - lowering columns), which is already used for more than ten years.
Today MACD is included in the standard equipment of many platforms for binary options trading and is used either alone or in combination with other indicators.
Indicator operation is based on the convergence-divergence of three exponential moving averages (EMA) and, in general, is designed to calculate divergence and convergence on the assets charts.
As already mentioned above, it is the most suitable indicator to determine the beginning and reversal of trends on the market and that is the reason why it is not used on flat and horizontal markets, in contrast to the Stochastic Oscillator indicator. To use this indicator rises and falls in quotes are needed, that is, the predominance of the more directional market movement up or down.
Indicator signals are often delayed, however, if properly applied, MACD gives a fairly timely and profitable signals.
Signals provided by MACD indicator
- MACD histogram intersection of its zero level is a very often used by traders signal, which occurs at the turn of the trend in the market of an asset or at the price pullbacks. Such changes in trends can serve as an excellent signal to enter a binary options purchase or sale trade.
- signals of change in a more short-term trends are as well given by the signal line of the MACD indicator, by which traders also determine the place for a successful trade entering point for purchasing or selling a financial asset using binary options.
- the MACD indicator often serves as a filter for other indicators signals. For example, it is also used in conjunction with Stochastic Oscillator, which more clearly defines the occurrence of short-term trends, but it is not suitable for trend trading. Thus, the side of trades to be made with its use will be shown by the MACD indicator.
Divergence itself is a kind of asset price indicator and the MACD indicator variance, which arises as a consequence of the inertia of the indicator movement that does not keep up with the price chart. However, this feature indicates the most interesting moments to enter the purchase or sale trade of a binary option.
As you can see in the screenshot above, the price of a trading instrument for quite a long time was moving lower, while the MACD did not show sufficiently clear and timely response to this trend, as a result its performance began to differ greatly from that in the charts. This variance is called divergence, which gives the earliest signals for the binary option trade.
MACD usage specifics
Generally, the MACD indicator is not applicable in independent trading. Its function is to qualitatively complement signals from other indicators and filter out those that are against the direction of the trend.
The only signal of MACD, which can be used in trading separately from the other, is a signal of divergence since it is the most potent and effective indicator signal.
Let us also note the fact that the MACD is a trend indicator, the application of which during flat and horizontal markets gives a lot of false as well as late signals for trading. During flat market, MACD gives the signal at the point when it is already late to enter purchase or sale orders.