The MACD divergence indicator was submitted online by Mr. Hassan AL-Ghamdi from Saudi Arabiasent. It is a combination of the MACD indicator and the divergent lines.
The indicator displays divergent lines both on the main trading chart and on the cart below the trading chart. The MACD indicator is displayed on a separate chart below the trading indicator. On the chart where the MACD Divergence indicator is displayed there are also divergent lines and signal arrows that are displayed. The arrows are either red or green. Red arrows shows a sell signal while the green arrow shows a buy signal.
The MACD Divergence indicator has a zero line (center line) from where bars form on either side. The bars that form on the lower side of the Zero line are maroon in color while those that form above the zero line are green in color. The bars that form below the zero line shows that the trend is to the downward side while those that for above the zero line shows an upward trend.
Fig.1. The MACD divergence indicator.
The divergent line are green dotted, green and continuous or red and continuous. The divergent lines that are formed on the trading chart are towards a different direction to those formed on the indicators chart but they all show the same thing. For example if the divergent line on the main trading chart is green and towards the upward direction then the one that will be formed on the indicator’s chart will be green but down wards. The reason behind this is that for any signal to be given, then the market prices must be at the maximum of the current trend; this is to mean that a buy signal is given after downward trend has reached its maximum and the market prices have started to rise. Therefore, the divergent of the on the indicator’s chart will point down to the point where the indicators down trend indication gets to.
How to place orders using the MACD divergence indicator.
Although understanding how this indicator works is a bit tough, when it comes to placing orders, you need not now the logics behind its working but only how to interpret its signals. The signal to look out for is the arrow on the indicators chart that is usually bellow the main trading chart. The arrow can either be red or green. In case of a red arrow then the trader should get ready to sell while if the arrow is green the trader should get ready buy.
Opening a buy position: the trader should open a buy positon when a green arrow appears on the MACD indicator’s chart. The green arrow will appear when the bars are maroon and below the zero line but when at their maximum length meaning after the arrow appears the market prices will rise from then hence forth.
Opening a sell position: the trader should open a sell positon when a red arrow appears on the MACD indicator’s chart. The red arrow will appear when the bars are greed and above the zero line but when at their maximum length meaning after the arrow appears the market prices will drop from then hence forth.
Illustrating when to place orders.
Download Free Forex MACD Divergence Indicator