Hello traders welcome to invest to comes how to serious and the module on oscillators on this lesson we're going to review the MACD or moving average Convergence divergence which is one of the simplest and most effective momentum indicators available now here we have a MACD on a euro US dollar chart.
And this is how the MACD looks like on the mt4 platform you have the histogram and you have the signal line okay now the way to use the MACD is to wait for the the arm it's open to build up or build down as you can see here when the histogram is flat there is almost no price changes.
And we are in a very untradable range okay but when the the histogram on the monkey starts to build up or down we have moments either to the upside or to the downside now here's how you read the MACD.
You have the zero line the zero line is the barrier the frontier between the Bulls and the Bears meaning that if the histogram is building to the upside we have a bullish pressure in the market meaning that price is going to go up on the contrary if the MACD histogram is building to the downside.
We have a bearish pressure in the market and price is going to move down because of the selling pressure now um this is how you're going to use the malady for bio sell signals for instance when the MACD starts to build up such an in this case you have a signal to buy okay and the signal to buy comes right around let me just get rid of this sound rectangle that we use before.
And the signal to buy comes right here when we start or when the MACD starts to build up it's actually right here okay we have the multi-building up so we have a signal to buy and then the signal to close our position comes when the momentum to the upside is fading out and the multi gives us this signal when the histogram crosses below the signal line on the MACD meaning that the actual are closing signal would be right here meaning that you would have made all these Magda trade 36 pips okay.
And it also works to the downside if you look at this example right here we have well we have the MACD with the momentum to the upside but you can see that momentum starts to fade to the downside and then we have momentum building up to the downside this means that the bullish pressure that made price move to these highs is fading out and sellers are coming into the market pushing price down.
We want to take advantage of this selling pressure so when the MACD starts to build we have a signal to sell okay and now we sell right here and of course we have the exit exit signal or the MACD when the histogram crosses above the signal line meaning that we have a signal to close our trade right here okay now this will mean that we would have made around 24 pips on this short position using the MACD.
And as you can see the maddie is a very good on momentum trade because it signals when to get in when the actual pressure is coming into the market and when to get out before we give away all of our profits on a reversal and if you want to learn more about the MACD just go to our advanced technical analysis course at investor comm slash advanced technical analysis.