Macd divergence forex indicator is an MT4 indicator based on the price and forex indicator value to show divergence on the chart.
It is based on the forex divergence phenomenon and MACD forex indicator. MACD is the most famous forex indicator retail traders use to forecast the market. But we can get high-probability setups by combining MACD and divergence.
Working of MACD divergence indicator in MT4
The MACD indicator consists of a histogram, moving averages, and forex divergence lines.
The histogram shows the average chart price movement with time, oscillating around the zero line. So you can identify the momentum of market sellers and buyers in the forex market.
Moving averages(MA) are the second component of this forex indicator. 12 and 25-period forex moving averages are used in the MACD forex indicator. These MAs show the chart trend’s direction and signal a trend reversal in the market. The crossover of forex moving averages signals a trend reversal in the market.
The third component is divergence lines. These lines show the real-time divergence between the price and indicator.
What is divergence?
Divergence is the deviation between the actual price and the value of the indicator’s data. For example, if the price moves upward, the indicator should also be bullish. But if they are simultaneously moving in the opposite direction, the indicator or price diverges.
See also MACD Divergence Forex Trading Strategy
There are two types of divergence in the market
- Regular divergence
- Hidden divergence
Signals are generated based on forex moving average crossover and divergence.
When bullish divergence forms on the indicator, wait for the crossover of two moving averages in the bullish direction. Then place a buy order and hold the trade until a reversal moving average crossover does not happen.
When bearish divergence forms on the forex indicator, wait for the crossover of two moving averages(MA) in the bearish direction. Then place a sell entry order and hold the trade until a forex reversal moving average crossover does not happen.
MACD divergence forex indicator is the best price-action-based indicator used in MetaTrader 4 because this forex indicator analyzes the chart’s lower lows and chart highs to draw divergence lines.
We recommend using this forex indicator on higher timeframes like 4H and daily.
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