The MACD (Moving Average Convergence Divergence) True indicator is a technical analysis tool used in trading to identify trend changes and potential buy or sell signals in financial markets. It is an enhanced version of the traditional MACD indicator that aims to reduce false signals.
What is the MACD True Indicator?
The MACD True indicator consists of three components: the MACD line, the signal line, and the histogram. The MACD line is the difference between two exponential moving averages (EMA) of the asset’s price, typically a 12-period EMA and a 26-period EMA. The signal line is a 9-period EMA of the MACD line. The histogram represents the difference between the MACD line and the signal line.
The MACD True indicator adds a filter to the traditional MACD indicator to reduce false signals. The filter is based on the concept of trend confirmation, where the indicator considers the direction of the long-term trend before generating a buy or sell signal.
MACD True Strategy
The MACD True indicator generates buy signals when the MACD line crosses above the signal line, and the long-term trend is bullish. It generates sell signals when the MACD line crosses below the signal line, and the long-term trend is bearish. The indicator also considers the position of the histogram relative to the zero line to confirm the strength of the trend and the signal.
Traders use the MACD True indicator to identify potential buy or sell signals and to confirm the direction of the long-term trend. This indicator is typically displayed on price charts and can be customized to different timeframes and asset classes.
Buy Signal
The following could be your checklist for a buy trade:
- When the asset being traded is in an uptrend.
- When the MACD line crosses above the signal line.
- When the histogram bars rise above the zero 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 line crosses below the signal line.
- For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Sell Signal
The following could be your checklist for a sell trade:
- When the asset being traded is in a downtrend.
- When the MACD line crosses below the signal line.
- When the histogram bars fall below the zero 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 line crosses above the signal line.
- For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
MACD True Pros & Cons
Pros
- The MACD True Indicator can be used by traders to predict potential price reversal zones.
- This indicator can be used to detect trend direction as well as divergences.
Cons
- The MACD True 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 True 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 True 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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