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Moving Average Convergence Divergence indicator or MACD for short is amidst the treasured FX chart tools. In some analysis this tool is exercised as a solitary signal to trade and in others, it works merely as an indicator in itself, or as a check to reinforce other chart tools.

The MACD chart measures faster and slower moving averages and whether they are moving closer together (converging) or farther apart (diverging).

When they are converging you will find the two lines on the chart moving closer to each other and the bars on the histogram at the bottom of the chart get petite. or has climaxed.

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Of course the faster line reciprocates to a change in price movements more rapidly than the slower line. So when a new trend starts, the faster line will get closer and eventually cross the slower line. If the fast line diverges from the slower line, it would attest that there is a new trend.

At the point of intersection of the two lines, the histogram bars should be zero and their axis crossed and their location reversed like if they were above the axis, they would now be underneath and if they were underneath, they would now be above. A rapid enlargement of the bars are pointers that novel and powerful trend is now forming.

This intersection then can be worked as an alert to start a trade. You have a buy signal when the faster line crosses the slower line from beneath, and a sell signal when it crosses from above.

Nonetheless, there are limitations to the MACD which make the crossover fallible as an independent signal. This is due to the fact that the fast line lags behind the true prices just because it is an average of part prices. So when the market is very volatile, trends could be ending before the MACD crossover indicates that they have begun.

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The MACD is mainly suited to signify trend strength rather than trend direction. For this reason some traders ignore the crossover and look instead at the length of the histogram bars. That said, it is not recommended to use divergence as a signal to buy and to depart on the basis of an inauspicious price movement.

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If you are just starting out in Forex trading, you are probably better prescribed to base your trading decisions on other indicators on FX charts and turn over to the MACD only for checking.

Disclaimer: Currency investing is not risk free, may end up in significant losses, and is not suited for everyone.