EDUCATION: MACD

Hello, dear subscribers!
Today we will examine another one lagging indicator - MACD. It is very useful indicator but you need to use it carefully because usually it is just adds other indicators and can to generate a lot of fake signals.

What is MACD?
MACD consists of:
1)MACD (blue) = EMA(12) - EMA(26)
2)Signal (red) = EMA(9)
3)Histogram = MACD - Signal
The MACD line is the long EMA value substracted from fast EMA value. It shows the trend direction. If the MACD>0 the market is bullish, if MACD<0 - bearish. The difference between MACD and Signal line is the proxy of trend strength.

How to trade with MACD?
The classical approach to MACD is to search the MACD and Signal line crossovers: when the MACD crossed the signal line from down to up it is the bullish signal, in opposite case - bearish. The MACD and zero line crossover means the trend confirmation. But this approach is not good enough to make profit. As you can see on the chart it can generate fake signals or signals which are too late - the price have already grown. If you want to use only MACD, please, find really strong signals. For example, if the price demonstrated higher low and MACD - lower low, it is the hidden bullish divergence. With the further MACD and signal lines crossover it gave a really nice long signal.

Summary
1)Find the price/MACD divergence
2)Wait for the MACD and signal line crossover
3)Enter an appropriate position
4)Be careful about weak signals
5)Use MACD with other indicators as an addition confirmation sign