For any trading activity, it is important to conduct various analyses before making any decisions. In this way, the trader maximizes his chances of success. In particular, he must use an indicator to guide him in his choices. The MACD or Moving Average Convergence Divergence (which can be translated as convergence and divergence of moving averages) is one of them
It is used, in combination with other tools, to perform a technical analysis. The principle is simple: study graphs representing prices to detect trends and predict how markets will evolve. So, how to use the MACD in binary options?
Presentation of the MACD
The MACD is a very common indicator used by binary option traders. It is also often recommended by specialists to better predict the trend of a particular asset. It helps to determine the direction that the price of an option will take: downward or upward? Knowing and mastering the MACD is inseparable from the initiation to binary option trading.
How does it work?
The MACD, as its name suggests, is based on the difference between averages. More precisely, it is a question of observing the difference between two exponential moving averages (EMAs) over two different periods (short term and long term). In this way, the most recent prices are highlighted, resulting in a more dynamic curve and much better reflecting fluctuations.
Most often, 16-day and 26-day time limits are used. Since the purpose here is to detect a discrepancy, the MACD is zero when two MS are of the same value.
In practice, two curves are then observed. The first illustrates the variation of exponential moving averages while the second (which is superimposed on the previous one) corresponds to an exponential moving average at a given period (it is the signal line).
How to interpret the MACD?
First of all, it should be noted that the MACD is therefore used to forecast price movements through technical analysis. The trader is closely interested in the behaviour of the two curves mentioned above. When the fast MACD graph crosses the low signal line upwards, it is the right time to make a purchase. On the other hand, if the curve of the fast MACD crosses the signal line downwards, it is a sale that must be made. It should be noted that each time the two curves cross, it bodes well for a shift in bullish and bearish trends.
Reliability of the MACD
Due to its specificities, the MACD is a particularly interesting indicator. It allows you to interpret the evolution of prices in a dynamic and reactive way. Moreover, many specialists strongly recommend its use. In any case, this is not an infallible method. It is important to take into account everyone’s trading preferences. In particular, the MACD is not the most suitable for short-term (24-hour) trading. In any case, it is essential to combine it with other analyses. Please note that the broker OptionWeb offers in its video library for Gold accounts a set of videos on technical indicators including the MACD.