MACD True Indicator

MACD True Indicator

MACD True is an enhanced for of traditional MACD indicator. It helps to recognize trend reversals. You can use it as a sole trading strategy.

The MACD (moving averages convergence divergence) True indicator is a momentum trend-following indicator that displays the relationship between the two MAs (moving averages).

Traders can use the MACD True indicator in conjunction with any forex trading system or strategy to confirm entry and exit points.

In this guide, we will analyze the nuances and peculiarities of trading with the MACD True Indicator.

What is the MACD True indicator?
Gerald Appel devised the MACD indicator in the late 1970s. The MACD indicator aims to show changes in the current market’s strength, momentum, and direction.

To predict MACD crossovers, Thomas Aspray added a bar graph or “histogram” to the indicator in 1986. For technical traders who use the MACD indicator, this became the industry standard.

However, the default MACD indicator in MetaTrader 4 does not employ Appel and Aspray’s classic formula. This might be puzzling for traders, especially if they are not familiar with the forex market.

Fortunately, MACD True indicator lets you solve the problem and use Appel and Aspray’s traditional formula.

It takes some part of the traditional MACD and adds a twist with its additional signal line. This signal line helps you determine the overall price trend.

A lot of traders think that the MACD True Indicator is similar to the RSI. However, this is not the case.

The MACD True indicator evaluates the relationship between two moving averages (EMAs), whereas the RSI measures price change concerning recent price highs and lows.

These indicators indicate market momentum, but because they measure distinct parameters, they can occasionally produce contradictory results.

For example, the RSI may display a reading above 70 for a lengthy period, indicating that the market is tilting to the buy side about current prices. Yet, the MACD True indicator suggests that the market’s buying momentum is still building.

How to use the MACD True indicator?
Many traders combine two EMAs in their trading. There is usually a fast one and a slow one. Using two EMAs seeks to improve overall trend identification or even signal entry or exit points.

The MACD expands on this principle by retaining a slow and fast line. It does, however, make use of a signal line.

The fast and slow line crossovers serve as a signal for entry and exits. For example, if you want to go long, you wait for the fast line to come below, then cross over to the top of the slow line. From there, you can initiate a buy position.

Wait for the fast line to cross towards the bottom side before exiting. This is likely the most basic method of trading the MACD True indicator.

You should look at the MACD True bars to get a better sense of price momentum.

The price has more momentum when the bar is longer. What’s unusual about this is that you can compare the momentum of the current bar to the momentum of the prior bar or bars to easily determine momentum strength or weakness.

MACD True indicator trading strategy
The occurrence of divergence and convergence may be a hint that a trend change is on the way.

As a result, you may choose to take positions in opposition to the present short-term trend.

Buy setup
MACD should cross below the signal line.
MACD should cross below the zero line.
Go long when MACD crosses above its signal line.
Place stop-loss near the swing low and take profit around next resistance area.

Sell setup
MACD should cross above the signal line.
MACD should cross above the zero line.
Go short when MACD crosses below its signal line.
Place stop-loss near the swing low and take profit around next resistance area.
Place stop-loss near the swing low and take profit around next resistance area.
Conclusion
The MACD True indicator for MT4 works similar to the traditional MACD; however, it provides you with an additional 9-period signal line. This can help you in analyzing the overall price direction.