When it comes to technical analysis, few indicators are more popular than moving averages (MA) and the moving average convergence divergence (MACD). These two technical indicators are used together to identify trading opportunities.
Why do UK traders use MA and MACD? These indicators are so popular because traders can use them to measure several different things. For example, MA can identify trends in the forex market, while traders can use MACD to measure momentum. This article delves into the relationship between MA and MACD and how you can use them to your advantage.
Moving averages (MA)
Moving averages are among the most popular and widely used and popular technical indicators in the UK. They smooth out price action and can be used to identify trends. There are different moving averages, but the most common ones are the simple moving average (SMA) and the exponential moving average (EMA).
The moving average convergence divergence (MACD)
MACD is a momentum indicator used in trading based on moving averages. It uses two exponential moving averages (EMAs), a fast one and a slow one, to identify momentum. MACD also has a histogram that shows the difference between the two moving averages.
The relationship between MA and MACD
An important thing to remember about MA and MACD is that they are both trends following indicators, which means that they will not catch every move, but they will give you a clear idea of where the overall market may be headed.
MACD is based on moving averages, so it naturally follows that the two indicators will have a similar signal. However, there are some differences. For example, traders can use MACD to identify divergences when the price is moving in the opposite direction to the indicator, and this can be a strong signal that a trend is about to change.
Another difference is that MACD is a momentum indicator, which will give you early signals of a change in trend because the fast moving average will start to diverge from the slow-moving average before the price starts to move.
How to use MA and MACD together
The best way to use MA and MACD together is to look for confirmation from both indicators before entering a trade. For example, if you observe a bullish divergence on MACD, you could wait for the price to break above the MA before entering an extended position.
You can also use MA and MACD to exit trades. For example, if the price is below the MA and MACD is declining, it could be a good time to exit an extended position.
Benefits of using MA and MACD together
There are several benefits of using MA and MACD together. First, as we mentioned earlier, these indicators can help you confirm each other’s signals, giving you more confidence in your trade setup.
Second, using MA and MACD together can help you filter out wrong signals. If you see a bullish divergence on MACD, but the price is not above the MA, entering a long position is never good.
Lastly, using these indicators together can help you find trend reversals sooner than just one indicator because MACD will often give early signals of a change in trend.
Drawbacks of using MA and MACD
Like any technical indicator, MA and MACD are not perfect. They will not catch every move, and they can sometimes give false signals.
The best way to avoid false signals is to use MA and MACD together and confirm signals with other technical indicators or price action.
MA and MACD are two of the most popular technical indicators. They are both trend-following indicators that traders can use to identify trading opportunities. The best way to use these indicators is to look for confirmation from both indicators before entering or exiting a trade. Before using technical indicators, novices should contact a reputable and trustworthy online broker like Saxo Bank. Before investing real money, they should test their systems on a demo account. For more information you can go on their website. If you would like to try out trading, you can sign up for a free trial here.