A word on MACD

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This is my favourite indicator. If you want to fully understand its use, please refer to www.tradingsmarts.com/macdindicator.htm. That page will tell you all you really need to know about this truly powerful indicator.

It is important in forex trading, as in other forms of trading, that you use MACD in different time frames to get a handle on where price action really is going. Don't just depend on any one time frame. It's best to view this indicator at different levels, starting at higher levels - i.e., longer-time duration - and then cranking the microscope down to lower levels.

To explain, a downtrend can persist in spite of higher MACD lows on a shorter time frame, indicating that, if the price range has been huge, it has progressively reduced the effectiveness of this indicator on the shorter time frame. The higher time frame can remain in a "sell" mode, and confirm a downtrend, even though the shorter time frame is faking you out with what appears to be a buy signal.

As with all forms of trading, keep your eye on the big picture, and look at things top-down. Macro-manage your trades. If you are working at a lower level, crank the microscope up a notch to see what is really going in the grander scheme of things.

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