The MACD (Moving average convergence divergence) is a trend following momentum indicator which shows relationship between two moving averages of prices.
This is mainly used as a signal of changing trends or of certain momentum upwords or downward (bullish or bearish)
There are several ways to use the MACD indicator as a signal:
1. When the MACD line is rising dramatically and in short amount of time, this signals that the market is currently overbought and will return soon to average.
2. Divergence – when the security price breaks the line of the MACD it usually indicates on the end of a current trend.
3. crossover – When the MACD falls below the signal line it means that it is might be a good time to sell, because the market is bearish, if it goes above the signal line it indicates it is a good time to buy because it is bullish, the crossover traders usually wait for a confirmed crossover before putting positions.
MACD as a strategy in EA algo trading
MACD is one of the most familiar signals or indicators used by human traders to detect trends of the market, combining a crossover tactics with Bollinger bands can create a strong signal of trends, the key factor of profit is to recognize the trends as they begin. This strategy can be implemented into Expert advisors to help make them better and increase % of profit.
Image of MACD and short explanation on reading it
Taken from Wikipedia