Hello there,

Today we are going to talk about another indicator termed MACD which is a trend-following momentum indicator. Let's begin.

Points to be covered:

Introduction: What is MACD?
Its formula.
How to apply it.
How does it work?
Applying it with different indicators.
Its Pros and Cons.

Introduction:

It gives us the momentum of the market in a well-prepared manner. It is all possible with the help of two moving averages. It will make a pair of lines by which we will be able to see a volume in the graph. From it, we can predict the momentum of the market. These two lines will represent the rise and fall of the market.

Formula:

MACD: 12 period EMA - 26 period EMA

EMA - Exponential Moving Average.

Long term EMA - 26 period

Shorte term EMA - 12 period

MACD is oftentimes displayed with a Histogram.

How to apply:

Open your trading account in any of the broker applications.
Select equity or a chart that you want to trade.
Now click the indicators table.
Select MACD from it.
Now in MACD, set the settings as follows:

Fast MA Period - 12

Slow MA Period - 26

Signal Period - 9

By doing so, you can see the indicator on the graph. And you can start investing with help of the MACD.

How does it work?

Well, its name says it all that it works on moving averages and showing data to us.

It will show you three things by default when you open it. And these are:

Green Line - Signal
Black Line - MACD
Histogram - Increasing/Decreasing Bar

When the green line rips off the black line and goes upward and the histogram also goes to the upside then there are chances for the market to be bullish.
And if the black line tears the green line and moves in the upward direction then the market will go in the favour of a bearish trend.

You can set the duration of the interval according to your trading system and strategy.

But the duration set to the default is :

For Intraday: 15-30 minutes.
For Options: 1-5 minutes.

Applying with different Indicators:

Well, we had told you anything you would find useful to use MACD. Now, we will discuss the main benefit of indicators i.e., applying one indicator with other indicators at the same time. It is done by smart investors especially those beginners, by which they can increase their accuracy and strong their investments. Well, you can do that too. Don't know how? Let's learn.

We can use the MACD with other indicators like Bollinger bands, RSI etc.
It will help you a lot while predicting the movement of the trend of the asset you are trading upon.
It will help you to fill your pocket very easily.

Pros and Cons:

Pros:

It is easy to use.
Easily Understandable.
Can be compatible with other indicators also.
Best market indication accuracy.

Cons:

Not 100% accurate.
Requires full attention, even a single blink will be able to book you a loss.

Thank You,

MACD: Moving Averages Convergence Divergence