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Chapter 12, Part II. Moving Average Convergence Divergence - MACD Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 20, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Pipruit: Wait a minute – you’ve said that it consists of two lines, but here we have three…​

    Commander in Pips: Yes, but Lines of MACD that you see on the chart are not just the MAs that we’ve specified. If it will be so, then why we should use it – this is the same as a simple MAs. What’s the difference?

    Pipruit: And so what are the lines then?

    Chart #1 60-min EUR/USD and MACD (12; 26; 9)
    [​IMG]

    Commander in Pips: Look how it works:

    1. The fast line of MACD indicator calculates as difference between MA1 and MA2:

    MACD (line) = MA1-MA2.

    This is the first line that you see

    2. The second line that is slower is a moving average that calculates using MACD (line) – that difference between MA1-MA2. Other words it plots average difference between MA1 and MA2. And by appointing some parameter for MACDA – you exactly appoint number of such differences that will be averaged by this third line:

    MACDA = Moving average on (MA1-MA2).

    That’s the second line.

    Although those two lines look like a simple MA crossing – the way of calculation gives significant advantages when you apply MACD.

    Pipruit: Sounds a bit complicated. So, the first line is a simple difference between two MAs that we’ve specified in the parameters of the MACD indicator. Speaking in terms of default settings – this is “26-period MA – 12-period MA”. So, software calculates the value for 12-period MA, then it calculates value for 26-period MA and finally calculates the difference between them and particular this difference we see as the first line of MACD Indicator right?
    Commander in Pips: Absolutely.
     
    #1 Sive Morten, Dec 20, 2013
    Lasted edited by : Mar 17, 2016
    Hamza Samiullah and fran alvarez like this.
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