WHAT if I told you that, if you trade with the trend, you're more likely to be profitable? Now what if I told you that there is an indicator that helps you identify the trend to ensure you're on the right side of the market? There is, and it's called Moving Average Convergence Divergence (MACD). It's popular and well-used, but it's definitely not a licence to print money.
It does, however, let you know if the trend is positive or negative, and with this information you can work out whether you want to buy or sell. And using it in addition to the pivot point indicator, you can work out the entry and exit levels. The hardest part of trading - like many other things - is sticking to the programme, rather than overanalysing the tools or market.
CONSTRUCTING THE INDICATOR MACD is put together from two moving averages. During a strong trend, these two moving averages diverge, moving further apart as price races higher. At some point, the initial reason for the rally might drop in importance, causing price to slow down and the two moving averages to converge. At this point the trader exits the market.
There are two ways to best use this indicator: on the daily timeframe, to minimise false signals; and when you match the trend with the prevailing macroeconomic outlook. It's fairly easy to do this if you read the financial press or fundamentals updates from DAILYFX.com For more about this, read our longer article http://bit.ly/MACD2014
Azambrano@dailyfx.com Twitter: @ALEJANDRODFX
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