Hello,
and welcome to indicator series of forex monopoly.
In this video, I will tell you what is MACD
and what is it used for?
MACD stands for moving average convergence
divergence.
It is a trend-following momentum indicator
and is a lot different from the momentum indicators
which we saw in the previous video.
If you haven't watched those videos yet, you
can check out the indicator series playlist
or click on the I button.
Now, Unlike RSI and stochastic 
oscillator, MACD is a trend-following
indicator used to trade trending market and
it does not have overbought and oversold levels.
It is shown as two lines moving without boundaries
and moves freely above and below the baseline.
Generally a Macd consists of a MACD line,
a signal line, a baseline, and a histogram.
Like all the other indicators, the settings
of this indicator can be customized.
But considering the default setting, the MACD
line is calculated by subtracting the 26-period
exponential moving average from the 12-period
exponential moving average.
And the result is shown in the form of a smooth
line.
As this line shows a relationship between
two ema's and not the price, and as a single
ema is not reliable, another line is plotted
with the Macd line.
This line is the ema of the MACD line and
called a signal line.
As the name suggests this line is used to
spot buy and sell signals.
I will tell you how traders use this indicator
later in this video, but first let's understand
the mechanism of MACD.
These two lines are plotted over the baseline
which is at level 0.
And also, a histogram is drawn over this baseline.
Let us now go to the charts and understand
Macd properly.
So, this is the MACD indicator,
the blue line is the Macd line, this orange
line indicates the signal line.
And these two lines are plotted over a baseline.
Now,
MACD crossing above the baseline or zero gives
us a bullish signal and when it moves below
zero it gives us a bearish signal.
Also when MACD turns up from below zero it
is considered bullish.
When it turns down from above zero it is considered
bearish.
Now,
When the MACD line crosses the signal line
from below to above, the indicator is considered
bullish.
But remember the lines should be below the
zero lines for a stronger signal.and gives us a bullish signal
And,now in the same way 
When the MACD line crosses from above to below
the signal line, the indicator is considered
bearish.
This time both the lines should be further
above the zero lines for a stronger signal.
This histogram over here gives a signal of
confirmed momentum change,
When green bars are formed above the baseline
it tells that buyers have entered the market.
And when the red bars are formed below the
baseline it tells that the momentum is with
sellers or sellers have entered the market.and the market is bearish
Now just like other indicators, you can also
change the settings of this indicator,
you can change the inputs as per your need
and also change the colors of lines and histograms.
Now, if you lower the period of the slow and
fast EMA, the indicator will get more sensitive
to the price and give you fast and more signals.
And due to this Macd works best with a lower
period if you use it for scalping.
But by doing that it will give you more false
signals.
Let us add another Macd,
lower its period and see what I meant.
Now, we have two Macd, one with a lower period
and one with a higher period with a default
setting.
Now, if you compare both to the price,
The Macd with a lower period has given us
an early signal by crossover.
If you see here the Macd lines crossed the
signal line and the price moved up.
But while the Macd with a lower period already
gave us the signal, the Macd with a higher
period is lagging behind.
So, using a Macd with a lower period can be
very beneficial for scalping but then you
should be aware that it also gives a lot of
fake signals.
Many traders use this indicator differently,
they all consider different factors to use macd
let us see how traders use this indicator
There are 3 most common ways by which traders
use this indicator.
1) Identification of trend based on the crossover
of the baseline and the Macd line.
When the Macd lines move above the baseline
traders see it as a bullish signal.
And when the Macd lines move below the baseline
traders view it as a bearish trend.
2) Macd line and signal line crossover signal.
When both the lines, that is the Macd line
and the signal line is far below the baseline
and when the Macd line crosses the signal
line and moves above it, traders take it as
a buy signal and enters a buy trade.
Like you can see here,
when the Macd line crossed the signal line
and moved above it, the price started moving
up.
In the same way,
When both the lines, that is the Macd line
and the signal line is far above the baseline
and when the Macd line crosses the signal
line and moves below it, traders take it as
a sell signal and enters a sell trade.
Like in this example,
Here the macd line crossed the signal line
and moved below it, and at the same time price
started moving down.
3) Macd line and signal line crossover plus
the histogram.
Many traders use a histogram with the above
method to confirm the buy and sell signal.
Like,
When both the lines, that is the Macd line
and the signal line is far below the baseline
and when the Macd line crosses the signal
line and moves above it, traders look for
the histogram to move above the baseline and
form green bars and then consider it as a
buy signal and enters a buy trade.
Like in this case,
here we can see that the macd line and signal
line crossover happened and at the same time
the histogram turned green.
And the price started moving up.
So, the traders first look for crossover and
then wait for the green bar to form above
the baseline and then enter the buy trade.
In the same way,
When both the lines, that is the Macd line
and the signal line is far above the baseline
and when the Macd line crosses the signal
line and moves below it, traders look for
the histogram to move below the baseline and
form red bars and then consider it as a sell
signal and enters a sell trade.
Like in this case,
here we can see that the Macd line and signal
line crossover happened and at the same time
the histogram turned red.
And the price started moving down.
So, here the traders first look for crossover
and then wait for the red bar to form below
the baseline and then enter the sell trade.
4) Macd divergence and crossover signal
Traders use a MACD divergence to spot the
reversals and crossover signals for confirming
the reversal.
The traders first spot divergence using the
Macd line and signal line and then wait for
the two lines to crossover.
BTW, If you don't know what divergence is
you can check it out by clicking the I button.
Now, let us try to understand how do trades
trade using this technique.
As you can see over here,
The price created a higher high, but the indicator
created a lower high giving us a divergence
signal,
After that, here the Macd the line moved below
the Signal line giving us a confirmation of
the reversal.
So, traders often spot a divergence like this
and then enter the trade after the crossover
happens.
As you can see after the divergence and crossover
the price started to move down and hence gave
a perfect reversal.
So, these are the most common ways by which
traders trade using this indicator.
Again this indicator works pretty well but
lags.
That is it gives us late signals.
So, just like other indicators, this indicator
should not be used alone, it should be combined
with other indicators or technical tools.
I hope you understood everything correctly,
if not then let me know your questions in
the comment section below, I will be happy
to help you.
And if you liked this video then let me know
by clicking the like button and don't forget
to subscribe to this channel as I will be
uploading many more amazing videos on other
indicators very soon.
Thank you.
