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Forex Glossary

The Industry's Most Important Terms Explained

The forex industry is made up of countless definitions and it's easy to forget a few along the way. But because no forex education can be complete without a glossary of forex terms, we've compiled one which aims at explaining key definitions in the simplest way possible. This way, you'll never be lost or confused again!


MACD

The Moving Average Convergence/Divergence is a momentum oscillator developed by Gerald Appel.  It is the difference between a 12 period and a 26 period Exponential Moving Average plotted usually as a histogram above (difference is positive) or below (difference is negative) the zero line. A 9 period Simple Moving Average of MACD is known as the Signal Line. 

MACD follows the general rules of oscillator analysis:

  • Confirmation of the trend is in place when MACD crosses the zero line.
  • Early Buy signals (or reversal warning) are triggered when MACD crosses above the Signal Line when below the zero line.
  • Early Sell signals (or reversal warning) are triggered when MACD crosses below the Signal Line when above the zero line.
  • Overbought/Oversold signals are triggered when the 12 period EMA pulls away from the 26 period EMA.
  • MACD is unbounded and as such, there no overbought and oversold lines.
  • Divergence follows the rules for positive and negative divergence.

Category: Technical Indicators

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