Best MACD Indicator Trading Strategies for Binary Options.
In binary options trading, there are multiple technical indicators that you can use to make accurate speculations. Out of those indicators, some are complicated, and some are easy to use, as the MACD indicator.
MACD, also known as Moving Average Convergence Divergence , is a technical indicator that you can use to increase the profitability of your trade. For that, you must know the fundament of this indicator.
Moreover, you should know how it works and what are its different trading strategies. Also, you must know about the limitations of the MACD indicator.
You will find answers to these questions in this guide.
What you will read in this Post.
What is MACD Indicator?
MACD is an excellent indicator that measures the connection between two exponential moving averages (EMA). Gerald Appel, in the 1970s, has developed this technical indicator.
The generated data is shown via three lines: the MACD line (blue line), the signal line (red line), and a histogram (green).
Here, the MACD line is the result of the difference between two leveled moving averages. The difference is calculated in assets 12 days (fast) and 26 days (slow). Similarly, the signal is a 9-day exponent average of the MACD line. Lastly, the histogram is the result of MACD minus signal line.
The MACD histogram will increase if the asset moves strongly in a particular direction. But if the histogram starts to shirk, you can conclude that there will be a price reversal.
Since the MACD line wave in and out around zero lines, it resembles the characteristics of an oscillator. You can spot this indicator on the chart as two lines that are oscillating without any boundaries.
You can analyze the data to make a trade using this indicator. You can further buy the security when the MACD line crosses above the signal line. But you should sell the asset if it crosses below the signal line.
MACD is a great indicator that can be interpreted in various ways. But rapid rises/falls, convergence, and divergence are a few standard methods.
In short, Moving Average Convergence Divergence is a helpful indicator that helps to identify short-term trend direction quickly. Also, it helps in spotting trend reversal. That means you can find better trading opportunities when using the MACD indicator.
(Risk warning: Your capital can be at risk)
Interpretation of the MACD.
The name of the Moving Average Convergence Divergence says everything that this indicator does. This indicator is a quick way of spotting periods when the trends in the market are either converging or diverging.
If the asset’s price goes in the same direction as the underlying asset, it shows a convergence. On the other hand, if price travels in a different direction, it indicates divergence.
If the short-term EMA is above the long-term indicator, then there is a divergence. But if the EMA and indicator are moving together, it is convergence. Additionally, MACD above or below zero also indicates something important.
In a bullish sign, the MACD indicator is above zero. In this case, the short-term EMA is moving away from the long-term moving average in an upward direction. On the other hand, in a bearish sign, the MACD is below zero. That means the short-term EMA is diverging away from the long-term moving average in a downward direction.
By including signal line and histogram, you can also conclude a few more things. Like if the histogram is positive, that indicates MACD is below the 9-period moving average. In short, MACD is traveling in the same direction. But if the MACD is above the moving average, that means the MACD is going in the opposite direction.