The EURUSD had another volatile but insignificant movement this week. There are no changes in my technical outlook where price is still in consolidation phase. A boring and trendless market especially in the last four weeks that really test our patience. Since there is no new technical development, I want to talk a little bit about one of the most famous modern indicators, MACD and how it reacts to both trending and non-trending market. I hope this can be useful, especially for new traders. A daily chart of EUR/USD is used for this purpose.
In general, if MACD moves below the zero line, the bearish momentum is increasing and a downtrend movement is expected. On the other hand, if MACD moves above the zero line, the bullish momentum is increasing and an uptrend movement is expected. Section A and B on daily chart below show how MACD reacts to a good trending market, downtrend or uptrend where MACD moves consistently below or above zero line .
Now let’s take a look at section C, which is happening right now, where MACD has been unable to build a consistent momentum above or below the zero line as price has been moving sideways in a non-trending market. One of the most common signals produced by the MACD is called the zero line crossovers. A bullish signal is given when MACD cross above the zero line. On the other hand, a bearish signal is given when MACD cross below the zero line. This kind of signal works very well in a trending market, but not in a non trending market like what we have now. That’s why, although MACD is an awesome indicator, using it as a single tool for trading decision is not recommended.
Have a great weekend and see you guys next week.
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