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Using the MACD Indicator

Using the MACD Indicator

Richard Krivo, Trading Instructor

Student’s Question:When using MACD, should I pay more attention to what the MACD indicator is showing or to what the chart is showing. Like when the MACD cross shows a sell should I sell and then when it shows a buy should I buy…just follow those signals?

Confused.Instructor’s Response:Good question…Many traders become overly focused on the indicator at the expense of what the chart is telling them. Keep in mind that the indicator does not know the direction of the trend but the price chart does…and so do you when you consult the chart first.

The chart graphically shows price action and price is indicator #1, our prime indicator.As traders we should first focus on what the chart is showing us…is the pair trending up or down? If the trend is down (as it is on the chart below) we should pay attention to the chart and only take trades in that direction as those will be the higher probability trades.Only after we have determined the trend, should we consult the indicator as a tool to time our entry in that direction. This is true for any indicator, not just the MACD.Bottom Line: Consult the chart first and the indicator second.

Using_the_MACD_Indicator_body_30470d1243470875-post-day-chart-5-27-09.png, Using the MACD Indicator

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.