When the MACD black line crosses above or below the MACD signal grey line, it is known as a cross or crossover. When the MACD black line crosses above the signal grey line, it is supporting a long position. And when MACD black line crosses below the signal grey line, it is supporting a short position.
The crossover of the MACD line and the trigger line close to the zero macd line provides information whether the trigger is in the direction of the current trend. A cross of the black line below the gray line that occurs below the zero line is a sell signal in the direction of the current trend. Whereas the cross of the black line above the gray line below the zero line is a counter trend buy signal. When the black line crosses above the grey line above the zero line, it is a trend buy signal and when the black line crosses below the grey line above the zero line, it is a counter trend sell signal.
Another way to use MACD is to get signals called Divergence. A divergence occurs when the price is going in one direction and MACD is not confirming that direction. When the price action is making lower lows and the MACD is making higher lows, it is known as a Positive Divergence. Similarly, when price action is making higher lows and the MACD is making lower lows, it is known as a Negative Divergence.
The Moving Average Convergence Divergence indicator, referred to as the MACD indicator, is an indicator that gives you information about the trends of the market in the foreign exchange. The MACD is found by taking the twelve day exponential moving average (EMA), and subtracting it by the twenty six day EMA. A nine day EMA is then calculated for the MACD. It is this EMA that is used as a signal line which is plotted on top of the MACD in order to make decisions about whether to buy or sell certain currencies.
While that definition is accurate, it does not necessarily tell a trader what they need to know in order to make use of the MACD indicator. With that in mind, here is how to interpret the behavior of the MACD indicator.
If the MACD falls below the signal line, this is typically considered a sign of a market that is about to start falling. This is referred to as a bear market. This is usually an indication that it is a good idea to sell this currency. On the other hand, if the MACD rises above the signal line, this is an indicator that the value of the currency is shifting momentum in a way that is causing it to rise. This is referred to as a bull market, and it is usually interpreted as a sign that it is a good idea to buy this currency. A large number of traders will not make a financial decision to buy or sell until the point when the lines cross each other.