Introduction to the MACD Flat Market Detector Indicator
The MACD Flat Market Detector Indicator was developed for the purpose of helping traders objectively identify flat markets wherein price tends to move in a tight range. However, it also has several uses aside from detecting flat ranging markets.
What is the MACD Flat Market Detector Indicator?
The MACD Flat Market Detector Indicator is a modified version of the classic Moving Average Convergence and Divergence (MACD) indicator. It is basically a MACD indicator with an added threshold marker which would indicate whether the market is moving in a trend or with strong momentum or if the market is in a flat market range.
This indicator plots histogram bars which are the MACD bars. It also plots two dashed horizontal lines which represents the threshold wherein the market would be considered flat or with strong momentum or trend.
How the MACD Flat Market Detector Indicator Works?
The MACD Flat Market Detector Indicator computes for the difference between a fast and slow Exponential Moving Average (EMA) lines. It then plots the difference as histogram bars.
The color of the bars also changes depending on whether the value of the current bar is higher or lower compared to its preceding bar. It plots a blue bar whenever the value of the current bar is higher than the preceding bar and a red bar whenever the value of the current bar is lower than the value of the preceding bar.
The two dashed lines are based on standard deviations from the average movements of the MACD bars.
How to use the MACD Flat Market Detector Indicator for MT4
This indicator has several useful options within its settings.
“Calculate On Bar Close” when toggled on causes the indicator algorithm to run only when a new bar closes making it non-repainting.
The “Fast EMA” and “Slow EMA” variables refer to the number of periods used on the two underlying EMA lines.
“Gamma” adjusts the standard deviation used for plotting the two threshold lines.
This indicator is mainly used for identifying flat market ranges and choppy market conditions. This is simply based on whether the histogram bars are generally within the range of the “Gamma” standard deviation of the MACD histogram bars.
The market is considered flat whenever the MACD bars are generally within the two threshold lines.
Inversely, this indicator can also be used to identify momentum breakouts and trending markets even during the early phases of its trend.
MACD bars breaching strongly beyond the threshold lines could indicate that a strong market momentum has developed and MACD bars that are generally beyond the threshold lines could indicate that the market is in a strong market trend.
Conclusion
Although this indicator can be used to identify momentum breakouts as trade signals, this indicator is best used as a Flat Market Detector, which is what its intended use was. This would help traders avoid trading choppy markets during tight market ranges. Aside from that, it can also be used to identify strong momentum breakouts based on the confluence of a momentum candle and a MACD bar that would breach the threshold quite significantly. It could also be used as an indication of a trending market based on bars generally being beyond the threshold lines.
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