MACD Color Indicator

The MACD (Moving Average Convergence Divergence) Color Indicator is a technical analysis tool used to identify potential changes in trend momentum. It is based on the standard MACD indicator, which is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA.

What is the MACD Color Indicator?

MACD Color Indicator is an upgraded version of the world’s one of the finest Forex momentum indicators “MACD”. It functions almost identically to the original version, but the visibility and signal demonstration have become noticeably clearer to grasp, and the latest version generates signals with less lag. MACD Color Indicator can be used in any Forex currency pair window and with any timeframe chart. Furthermore, the ease of signal reading and ease of use have made it increasingly attractive to newbie momentum traders.

Setting up the MACD Color Indicator
Setting up the MACD Color Indicator

MACD Color Strategy

MACD Color Indicator generates momentum signs by combining an MA (thin black) and its histogram bars. The bullish momentum is usually confirmed when the MA value goes positive and the MACD bars close above the MA level in a rising pattern. On the other hand, a negative MA number and MACD bars closing below the MA level indicate bearish momentum. Both the MACD bars and the MA returning to its zero parameter indicate that the present market momentum is weakening.

Buy Signal

The following could be your checklist for a buy trade:

  • When the MACD MA turns positive.
  • When the MACD bars turn green and hold its levels above the MA level.

Once these events occur:


  • You could open a buy position after you confirm your entry with bullish candlestick patterns.
  • You could set your stop loss just below the nearest swing low.
  • You could set your take profit at the nearest resistance zone, or you could exit trade when the MACD bars fall below the MA level.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
MACD Color Indicator Buy Setup
MACD Color Indicator Buy Setup

Sell Signal

The following could be your checklist for a sell trade:

  • When the MACD MA turns negative.
  • When the MACD bars turn red and hold its levels below the MA level.

Once these events occur:

  • You could open a sell position after you confirm your entry with bearish candlestick patterns.
  • You could set your stop loss just above the nearest swing high.
  • You could set your take profit at the nearest support zone, or you could exit trade when the MACD bars rise above the MA level.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
MACD Color Indicator Sell Setup
MACD Color Indicator Sell Setup

MACD Color Pros & Cons

Pros

  • The MACD Color Indicator can be used by traders to predict potential price reversal zones.
  • The indicator can be used to detect trend direction as well as divergences.

Cons

  • The MACD Color Indicator may sometimes mistake a trend reversal for a trend correction, and vice versa.
  • This indicator may not meet the trader’s expectations in a narrow-ranging market on smaller timeframes.

Conclusion

The MACD Color Indicator is worth including in your trading arsenal. A good forex indicator may boost your chances of success. Nonetheless, keep in mind the importance of having realistic expectations. MACD Color Indicator, like any other technical analysis tool, is not capable of providing 100% accurate signals. As a result, this forex indicator occasionally generates false signals. Its performance will be highly variable depending on market conditions. You are free to create your own trading system based on it.

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