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BASiCS www.tradersonline-mag.com 04.2014 The Trader’s Technical Arsenal Common indicators in Meta Trader – Part 6 Azeez Mustapha Azeez Mustapha is an offi cial analyst at Instaforex Companies Group, a blogger at Advfn.com, and a freelance author for trading magazines. He is working as a trading signals provider at some websites. He is a senior analyst at Paxforex.com. His articles are also available on other websites like www.ituglobalforex.blogspot.com. azeez.mustafa@analytics.instaforex.com In his last article (TRADERS´ 02/2014) Azeez Mustapha explained Fractals, the Gator Oscillator and the Ichimoku Kinko Hyo. This time he discusses the Moving Average Convergence Divergence (MACD), the Market Facilitation Index (MFI) and the Momentum indicator; as they work in MetaTrader, which continues to increase in popularity (especially version 4.0). In most cases, the indicators’ default parameters are used. 64
BASICS » The Moving Average Convergence Divergence (MACD) The MACD was created by Gerald Appel in the 1970s. This indicator is highly favoured by professionals and it is very easy to use. It shows the dominant bias as well as the momentum at a particular period of the market. Because of this, it is very good for trend identification/momentum identification. Trending markets are bifurcated into bullish and bearish ones. The MACD default parameters on MT4 go as follow: Fast EMA: 12 Slow EMA: 26 MACD SMA: 9 All applied to close Note: EMA stands for Exponential Moving Average and SMA stands for Simple Moving Average. Computation: MACD Line: (12-day EMA - 26-day EMA) Signal Line: 9-day EMA of MACD Line MACD Histogram: MACD Line - Signal Line In Figure 1, you see how the MACD appears on the GBP/CAD 4-hour chart. In order to make things as easily understood as possible, the red line of the MACD is the signal line and the vertical grey lines are the histogram. The zero line is marked as 0.00. As you can see, either the signal line and the histogram are above the zero line or they are below it. The zero line plays the role of supply and demand zones of the MACD. Uses for the MACD 1. MACD Crossovers: When both the MACD signal line and the histogram fall below the zero line, you consider short orders, for it means the market is falling. When both the MACD signal line and histogram go above the zero line, you can consider long orders only, for it means the market is rising. This is very noteworthy in that it makes you enter a trending market when it has been confirmed by the MACD. This is one advantage the MACD has over certain oscillators which make speculators dive into the ocean of the markets on bogus signals. F1) The MACD on the GBP/CAD 2. MACD Convergence and Divergence: MACD Convergence occurs when the price is in a downtrend and the MACD signal line and histogram are rising towards the zero line or above it, it could signal the end of the downtrend and the beginning of a bullish trend. MACD Divergence occurs when the price is in an uptrend and the MACD signal line and histogram are falling towards the zero line or below it, it could signal the end of the uptrend and the beginning of a bearish trend. At that point, things may go sour for the bulls, but the conditions in the market may become propitious for the bears. 3. Overextended Market Conditions: In an overextended bearish market, the MACD signal line and histogram will fall extremely significantly. This is an indication that there will soon be a rally in the market. The overextension of the market will be more significant on higher time frames than lower time frames; therefore the speculator should be careful. The quail does not claim to be wise, but it claims to be highly suspicious. This logic can be reversed for a bull market. In an overextended bullish market, the MACD signal line and histogram will rise extremely significantly. This is an indication that there will soon be a pullback in the market. It is like a kind of overbought and oversold conditions for oscillators. Market Facilitation Index (BW MFI) Introduced into the trading world by Bill Williams, the Market Facilitation Index (BW MFI) reveals the change of price per candle (or per bar). The indicator itself needs to When both the MACD signal line and histogram fall below the zero line, you consider short orders. When both the MACD signal line and histogram go above the zero line, you can consider long orders only, for it means the market is rising. Source: www.metaquotes.net 65
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TABLE OF CONTENTS PEOPLE 68 The Pro
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ADvErTOriAL Unlock your trading pot
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Coverstory That’s exactly what ha
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Coverstory revealing the line-plott
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