Moving Average Converence Divergence (MACD) is one of the many trading tools used to identify the moving averages. This tool will show the forex market whether it is bullish or downtrend. By learning this tool, you will know the forex market of its trend. Please refer to Babypips.com to know more about this.
When you refer to Babypips’s MACD chart, you will see three numbers that are use for its settings.
(1) The faster moving average for calculating the number of these periods.
(2) The slower moving average for calculating the number of these periods.
(3) The third is the numbers of bars that is used to calculate the moving average of the difference between the faster and the slower moving averages.
Refer to Babypips com’s example they have shown you how to get the diference between the two moving averages. The histogram simply plots the difference between the fast and the slow moving average. If you look at their chart, you can see the two moving averages seperate, the histogram gets bigger. This is called the divergence, because the faster moving average is “diverging” or moving away from the slower moving average.
Babypips.com explained that as the moving average gets closer to each other, the histogram gets smaller. This is called convergence because the faster moving average is “converging” or getting closer to the slower moving average. This is how MACD gets its name. You can read more to understand better when click into Babypips.