Momentum is an essential aspect of the financial markets. Momentum is the rate at which the price of an asset accelerates. A strong price trend is indicative of a good momentum while weak price movements display lower momentum.
Trading Binary Options with the MACD Indicator
Momentum traders usually look for large price movements so they can take a profitable position toward the direction of the movement. The underlying anticipation is that the price will keep moving upward or downward depending on the trader’s strategy.
Several technical indicators are used to predict the future movement of the assets by using past price trends. The Moving Average Convergence Divergence (MACD) Index is one of the most effective indicators in determining the momentum of an underlying asset. The MACD is essentially the difference between two moving averages, which are also known as the spread. The MACD then compares this difference to the moving average of the spread.
The 12-day and 26-day exponential moving average are the default for the MACD and they form the spread. In other words, the MACD(12,26,9) is arrived at by calculating the difference between the 26-day and 12-day EMA (Exponential Moving Average). The difference is then compared to the signal line, a nine-day moving average. Comparing the difference of the spread with the signal line is a helpful measure for buy and sell signals.
As a technical indicator, MACD works best in trending markets and not in fluctuating markets, which could display inaccurate signals. When the two moving averages of the MACD cross the zero mark, there is said to be a crossover. If the indicator was showing positive signals before the crossover, this would be a good time to make a put option because the market is bearish. On the other hand, in an upward crossover where the signal is bullish, you should take a call option position.
The algorith provided by MACD indicator allows to identify different signals types but the most important of these is that provided by crossing MACD Line with Signal Line.
The MACD is a particularly easy to use indicator because it allows you to quickly notice the direction of the price movement, albeit in the short term. It can be applied to 60sec, 5 minute, 30 minute graphs with different results between assets, pairs and others.
The MACD indicator can be used also with other signals or indicator that give to traders the opportunity to better chance of earn. We suggest as can you see before to apply MACD indicator to candelstick charts because allow to trader immediately screenshot of market direction.
Also if MACD isn't a newest signals (born in 1986) today is always adopted from traders of any experience and can be considered one of the basis of market analysis.