MA Convergence/Divergence Technical Analysis and MACD Signals

Created by Gerald Appel,

The Moving Average Convergence/Divergence is one of the simplest, reliable, & most oftenly used indicators.

It is a momentum oscillator & also a trend-following indicator.

Construction

The construction of this indicator calculates the difference between 2 moving averages and then plots that as "Fast" line: the second "Signal" line is then calculated from the resulting "Fast" line and then drawn on the same panel window as "Fast" line.

• "Fast" line - Blue Line
• "Signal" line - Red Line

The "standard" MACD values for "Fast" line is a 12-period exponential moving average & a 26-period exponential moving average & a 9-period exponential moving applied to the fast line, this plots "Signal" line.

• FastLine = difference between 12 and 26 exponential moving averages
• Signal-line = moving average of this difference of 9-periods

Technical Analysis & How to Generate Signals

The MACD is oftenly used as a trend-following indicator & works most effectively when interpreting trending market movements. The 3 common methods of using MACD to generate signals are:

XAUUSD Cross Overs Trade Signals:

FastLine/Signal Line Crossover:

• A buy signal is generated when Fast-line crosses above Signal Line
• A sell signal is generated when the FastLine crosses below the Signal-line.

However, in a strong trending market this signal gives a lot of whipsaws, the best cross over to use would thus be the Zero Line Crossover Signal that's less prone to whipsaws.

Zero Line Crossover Signals:

• When the Fast-line crosses above the zero center line a buy signal is generated.
• when the FastLine crosses below the zero center-line a sell signal is generated.

Divergence XAUUSD:

Looking for divergences between the MACD & price can prove to be very effective in spotting the potential reversal &/or trend continuation points in price movement. There 2 types of divergences:

1. Classic Divergence Signals
2. Hidden Divergence Signals

Overbought/Oversold Conditions:

MACD indicator is also used to spot potential overbought-oversold conditions in price action movements.

These levels are generated if the shorter MACD Lines separate dramatically from the median, this is an indication that price action is over-extending & it will soon return to more realistic levels.

MACD and Moving Average XAUUSD Cross Over Gold System

This indicator can be combined with others to form a trading system. A good combination with the Moving Average crossover system. A signal is generated when both give a signal in the same direction.

Technical Analysis in XAUUSD