What MACD & RSI Mean in Forex Trading?
Carl's 2 Cents:
I think a better use of MACD
and RSI would be the divergence. If
divergence occurs between prices and MACD or RSI,
there is a good chance that the market would
turn its direction. However, it does not
mean the market will turn immediately. One
way to help you decide is to use the candlestick
chart patterns.
As a Forex trader your main objective must be to become a
profitable trader. In order to achieve this goal, it is vital
that you learn how to use the widely known technical indicators.
These are very useful parameters that will tell you with a high
probability what the Forex markets are more likely to do in
their apparently disordered behavior as observed on the Forex
charts.
Among these indicators you will find the MACD and RSI; but
what's the meaning of these letters?, you may be asking
yourself. Well, here is the answer:
Moving Average Convergence Divergence: MACD is a more detailed
method of using moving averages to find trading signals from
price charts. Developed by Gerald Appel, the MACD plots the
difference between a 26-day exponential moving average and a
12-day exponential moving average. A 9-day moving average is
generally used as a trigger line, meaning when the MACD crosses
below this trigger it is a bearish signal (time to sell) and
when it crosses above it, it's a bullish signal (time to buy).
As with other studies, traders will look to MACD studies to
provide early signals or divergences between market prices and a
technical indicator. If the MACD turns positive and makes higher
lows while prices are still tanking, this could be a strong buy
signal. Conversely, if the MACD makes lower highs while prices
are making new highs, this could be a strong bearish divergence
and a sell signal.
RSI stands for Relative Strength Index. The RSI measures the
markets activity as to whether it is over bought or over sold.
It gives a trader an indication as to which way the Market is
moving. It is important to note, that this is a leading
indicator and thus allows one to see what the market is about to
do and then act accordingly. The higher the RSI number, the more
over bought it is and conversely the lower the RSI number, the
more over sold it is. It is a great leading indicator for the
micro and macro reversals in the Forex market. By using an RSI
on the 1 minute chart set at a period of 18 and overlaid on the
bottom of your charts tend to give the best entry signals. This
can also be applied to the 5-minute chart as well. The two
significant entry numbers are 25 and 75.
About the author:
Adrian Pablo; Forex trader
and freelance writer.
>> http://www.1-Forex.com
Written by: Adrian Pablo
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