MACD stands for "Moving Average Convergence Divergence". This indicator measures how much two moving averages are moving apart from or toward each other... there are three things we look in MACD
Scenarios...when two moving averages are going farther apart from each other and down then MACD line moves down away from 0 - this indicates downside momentum.
When two moving averages are going farther apart from each other and up then MACD goes up toward 0 - this indicates upside momentum...pretty simple right?
More scenarios...when two moving averages going toward each other and down then MACD line moves down toward 0, this indicates that momentum is slowing or reversing because the spread between the two moving averages is narrowing. When the two moving averages are going toward each other and up, MACD line moves up toward 0, this indicates that momentum is slowing down or reversing because the spread between the two moving averages is narrowing
And more scenarios...when two moving averages cross, MACD line is at 0 because there is no distance between the two moving averages
So how the hell do you use MACD for your trading?
When the trend is up
if the MACD line is above 0 on the retrace in the trend, consider the trend STRONG
if the MACD line returns to 0 or below on the retrace in the trend, conside the trend WEAK
When the trend is down
if the MACD line hold below 0 on the retrace in the trend, consider the trend to be STRONG
if the MACD line returns to the 0 or above on the retrace in the trend, consider the trend to be WEAK.
Just to simplify take a look at picture below...
I hope this helps and as always ...Happy Trading !!!
