The cTrader MACD divergence indicator is a great way of analysing the market and confirming a trend reversal using Telegram Alerts and if used the right way, it can also be used o determine specific buy and sell signals. The formula for the MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) indicator from the 12-period Moving Average.
MACD=12-Period EMA − 26-Period EMA
What is a MACD Divergence?
This was developed by Gerald Appel towards the end of the 1970s and the term Divergence in trading can be represented when a momentum indicator does not confirm the direction of the current movement of an asset. An example would be if the price of the GBPUSD shows higher highs on the chart, but the MACD indicator is showing lower-highs then this is considered a MACD Divergence. The simple rule is that one should have a shorter time period and the other a long time period.
For example, if the price of the EURUSD makes higher highs, but the MACD shows lower highs, this is considered divergence, or MACD divergence. The signal line can be used as an indication when you enter or exit a trade, you would buy when the signal line crosses above the MACD line and sell when it crosses below.
What Timeframes Are Used?
- Short-term intervals – 3, 5, 7, 9, 11, 12, 14, and 15-day intervals, but 9-day and 12-day intervals are more popular.
- Long-term intervals – 21, 26, 30, 45, 50, 90, and 200-day intervals; 26-day & 50-day intervals are more popular.
- The MACD indicator can be used when there is a good trend because it will not work in a ranging market.
- There can also be fake signals from the indicator when a bullish signal line crosses over and there is a steep decline in the price.
- The speed of the signal and MACD crossovers can also be a signal of a market is overbought or oversold.
- The MACD indicator will help traders see if the price is strengthening or weakening.
Limitations of MACD
A major problem with the MACD divergence indicator is that it may signal a reversal when there is no actual reversal happening for the symbol, which is a false positive. Also, another issue is that the indicator does not show all the reversals and may predict many that do not actually happen. it is best to use this indicator with your other indicator and signals as another indication of a price reversal.
Example of MACD Crossover
As you can see from the above chart, the yellow MACD line falls below the blue Signal line and the red triangle above the lines is the signal which is created and sent via a pop-up and Telegram message, this would be a sell signal. The opposite would happen if the yellow MACD line falls above the blue signal line which would show a bullish signal, as we are using divergence lines then sometimes the signals are sent on the divergence before the two lines cross. The MACD crossovers are more reliable when they follow the current trend and If the MACD crosses above its signal line following a brief correction within a longer-term uptrend, it will qualify for bullish confirmation.
- Use on any timeframe.
- Option to show and hide price & indicator trendlines.
- Show a pop-up alert for both buy and sell signals.
- Send an instant Telegram message for both buy and sell signals.
- MACD indicator displayed below chart.
- Divergence lines are drawn on the MACD indicator.
- Red and Green arrows to show buy and sell signals.
Configure Your Telegram Alerts
A useful feature included with this indicator is the ability to receive instant Telegram alerts when a signal is generated.
How To Install & Remove
First, make sure you have the cTrader trading platform installed and then simply unzip the file and double-click on it to automatically install it onto the platform.
If you have any questions, please first search our product help forum for the answer, if you cannot find it, post a new question.
Need a Broker
If you are still looking for a broker you can trust, take a look at our best cTrader broker site.