Firstly let's look at what the MACD is....
The MACD indicator is a trend-following momentum indicator calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. The result of that calculation is the MACD line. A nine-day EMA of the MACD line is called the signal line, which is then plotted on top of the MACD line. This signal line can then function as a trigger for buy or sell signals, however, additional indicators should also be used in conjunction with MACD to validate the signal quality.
The MACD histogram is essentially a visual representation of the difference between the MACD line and its nine-day EMA. The histogram is positive when the MACD line is above its nine-day EMA and negative when the MACD line is below its nine-day EMA. The point on the histogram where momentum is zero is the zero line. In the images below the MACD indicator is represented beneath the main chart window in MetaTrader 4. The main MACD line is the thicker line, the signal line is the dotted line and the histogram is made up from the black rectangles each one representing a chart period.
Typically the default settings for the MACD indicator are 12, 26, and 9, but you may need to adjust these settings depending on the security you are trading. Some traders prefer to use shorter or longer periods for the EMAs, and some traders prefer to use a different number of bars for the histogram.
There is no one size fits all or perfect setting for the MACD indicator. The best settings will vary depending on the individual trader's preferences and the security they are trading. Ultimately it is up to each trader to find what works best for them but generally the default values are a great place to start and often times traders keep the default values of 12,26 and 9.
If you are looking for a MACD indicator which will alert you when certain conditions occur - check out our MACD Crossover indicator with push notifications.
Do you have more questions about MACD? Click on the links below to find out the answers to these commonly occuring questions regarding the MACD indicator:-