3 Rules MACD Metatrader 5 Forex Indicator: A Comprehensive Guide

The Moving Average Convergence Divergence (MACD) is a popular technical momentum indicator used in forex trading. This article will delve into the 3 rules MACD Metatrader 5 Forex Indicator, focusing on its calculation and interpretation, signal line and histogram, and divergence and convergence.

3 Rules Macd Metatrader 5 Forex Indicator

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Understanding the MACD Indicator

The MACD is a trend-following momentum indicator that shows the relationship between two exponential moving averages (EMAs) of a security’s price. The MACD line is calculated by subtracting the 26-period EMA from the 12-period EMA. A nine-day EMA of the MACD line is called the signal line, which is then plotted on top of the MACD line, functioning as a trigger for buy or sell signals.

Traders may buy the security when the MACD line crosses above the signal line and sell—or short—the security when the MACD line crosses below the signal line. The MACD can also alert investors to bullish/bearish divergences, suggesting a potential failure and reversal.

The 3 Rules MACD Metatrader 5 Forex Indicator

The 3 Rules MACD Metatrader 5 Forex Indicator adds additional filters to the traditional MACD to avoid false or weak entry signals over traditional crossovers. The rules are as follows:

  1. Buy Signal: Occurs when the MACD line (blue) crosses below the Signal line (dotted orange), when the MACD line crosses below the Zero line, and when the MACD line crosses above the Signal line.
  2. Sell Signal: Occurs when the MACD line (blue) crosses above the Signal line (dotted orange), when the MACD line crosses above the Zero line, and when the MACD line crosses below the Signal line.

These signals can be used as a starting point for a trading setup, for manual trading or plugging into an Expert Advisor (EA).

MACD Histogram

The MACD is often displayed with a histogram that graphs the distance between the MACD and its signal line. If the MACD is above the signal line, the histogram will be above the MACD’s baseline, or zero line. If the MACD is below its signal line, the histogram will be below the MACD’s baseline. Traders use the MACD’s histogram to identify when bullish or bearish momentum is high.

Divergence and Convergence

Divergence occurs when the price of an asset is moving in the opposite direction of a technical indicator, such as the MACD. This can be a sign of an upcoming price reversal. A bullish divergence occurs when the MACD is making new highs while prices fail to reach new highs. Conversely, a bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows.

Convergence, on the other hand, occurs when the price of an asset is moving in the same direction as a technical indicator. This can be a sign that the current trend is strong and likely to continue.

3 Rules Macd Metatrader 5 Forex Indicator Conclusion

The Indicator is a powerful tool for forex traders, providing valuable insights into market trends and potential reversal points. However, like all technical indicators, it should not be used in isolation. Traders should use it in conjunction with other technical analysis tools and consider the overall market conditions before making trading decisions.

Author: Dominic Walsh

I am a highly regarded trader, author & coach with over 16 years of experience trading financial markets. Today I am recognized by many as a forex strategy developer. After starting blogging in 2014, I became one of the world's most widely followed forex trading coaches, with a monthly readership of more than 40,000 traders! Make sure to follow me on social media: Instagram | Facebook | Linkedin | Youtube| Twitter | Pinterest | Medium | Quora | Reddit

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