Introduction to the MACD Signals Indicator
Oscillators can be reliable trend following technical indicators, which is why many traders use an oscillator type of indicator as part of their trading chart.
Among the different oscillators, the MACD is probably one of the most popular oscillators. The MACD Signals Indicator is another oscillator type of indicator which is derived from the MACD.
What is the MACD Signals Indicator?
The MACD Signals Indicator is a trend following technical indicator which is derived from the classic Moving Average Convergence and Divergence (MACD) indicator. It is an oscillator type of indicator which is based on the signal line of the MACD oscillator.
The MACD Signals Indicator plots histogram bars to indicate trend direction. It plots positive bars whenever the market has a bullish trend and negative bars whenever the market has a bearish trend.
The color of the bars also changes whenever there is a strong momentum shift moving in the opposite direction. It plots sky blue bars whenever the momentum reversal is bullish, and fire brick bars whenever the momentum reversal is bearish.
How the MACD Signals Indicator Works?
The MACD Signals Indicator has an algorithm with an underlying MACD indicator. It calculates for the difference between a fast Exponential Moving Average (EMA) and a slow Exponential Moving Average. In a regular MACD indicator, the resulting difference would be used as the MACD oscillator line or bars. It then calculates for a Simple Moving Average (SMA) of the resulting difference, which in a regular MACD would be called the Signal Line. This indicator plots only the Signal Line as histogram bars, which is why it is called the MACD Signal.
The color of the bars change whenever the there is a sudden shift on the difference between the MACD line and the Signal Line with a substantial difference on the crossover, which is greater than the preset threshold.
How to use the MACD Signals Indicator for MT5
The MACD Signals Indicator has several variables which can be modified within its indicator settings.
“MaFast” refers to the number of periods used on the fast EMA line, while “MaSlow” refers to the number of periods used on the slow EMA line.
“MaSignal” refers to the number of periods used on the Signal Line.
“Price” refers to the price point on the candle used for the calculations.
“Sequence” refers to the threshold used to detect momentum reversals.
“Log” toggles the logarithmic calculation on or off.
Buy Trade Setup
When to Enter?
Allow the MACD Signals bars to be overextended below zero. Open a buy order as soon as the bars change to fire brick.
When to Exit?
Allow the bars to cross above zero then close the trade as the bars cross back below zero.
Sell Trade Setup
When to Enter?
Allow the MACD Signals bars to be overextended above zero. Open a sell order as soon as the bars change to sky blue.
When to Exit?
Allow the bars to cross below zero then close the trade as the bars cross back above zero.
Conclusion
The trade signals that this indicator produce can be very effective in identifying trend reversals that could run for a long time. This allows for trades with very huge profits. However, it does have the tendency to lag and can sometimes cause inaccuracies. Still, if used properly in the right context as part of a bigger trading strategy, this indicator can be a useful tool that traders can use.
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