MA Convergence/Divergence Analysis and MACD Signals

Developed by Gerald Appel,

The MA Convergence/Divergence is one of the simplest, reliable, and most commonly used trading indicators.

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

Construction

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

'Fast' line - Blue Line
'Signal' line - Red Line

The 'standard' MACD values for the 'Fast' line is a 12-period exponential MA and a 26-period exponential MA and a 9-period exponential moving applied to the fast-line, this draws 'Signal' line.

Fast-line = difference between 12 & 26 exponential MAs
Signal Line = MA of this difference of 9-periods

MACD Analysis Signals - MACD - Simple MACD Strategy

Analysis and How to Generate Signals

MACD is oftenly used as a trend-following indicator and works most effectively when interpreting and analyzing the trending market movements. 3 common techniques/methods of using MACD indicator to generate trading signals are:

XAUUSD Cross-overs Gold Signals:

Fast-line/Signal-line Cross over:

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

However, in a strong trending market this signal gives a lot of fake outs, the best cross over to use would thus be the Zero Line Cross-over Signal that's less prone to whipsaw fakeouts.

Zero Line Crossover Signals:

When the Fast Line crosses above zero center-line a buy signal gets generated.
when the Fast Line crosses below zero center line a sell signal gets generated.

Divergence Trade:

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

Classic Divergence Trade Setup Signals
Hidden Divergence Trade Setup Signals

Overbought/Oversold Conditions:

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

These regions are generated/derived if the shorter MACD Lines separate significantly from the median, this is an indication that price action is over-extending and it'll soon return to the more realistic levels.

MACD & Moving Average XAUUSD Cross-over System

This indicator can be combined with others to form a trading system strategy. A good combination with the Moving Average cross over trading method. A signal gets generated when both give a trade signal in the same trend direction.