The MACD Zero line indicator
The MACD Zero line indicator combines the two possible interpretations of the classic MACD into one, single signal. This combined MACD interpretation is used by day traders such as Tobias Heitkötter.
The advantages of this indicator:
- Unites both MACD interpretations in one signal.
- The MACD has proven to be reliable component in many strategies.
- A well-known indicator traders are familiar with.
- The indicator can be used on every instrument.
- The indicator is FREE.
MACD is the abbreviation for Moving Average Convergence Divergence. This trend-following indicator tracks the relationship between two moving averages of an instrument. This relationship results in the MACD line. This line is usually shown in a separate window below the chart. As the moving averages converge or diverge, the MACD line fluctuates above and below zero. Usually, a moving average based on the MACD itself is also calculated and displayed. This line, which indicates when the trend changes, is used as a signal line.
The two classic MACD interpretations are therefore:
- A zero line crossover. When the MACD crosses above the zero line, the market is bullish. This is a buy signal. The reverse interpretation for a cross below.
- A signal crossover. When the MACD crosses above the signal line, the market is bullish. This is a buy signal. The reverse interpretation for a cross below.
The MACD Zero line combines the two traditional MACD interpretations in one trading signal. The conditions for a trading signal are:
- For a long signal the MACD must cross above the signal line while the MACD is above zero OR the MACD must cross above the zero line while the MACD is above the signal line.
- For a short sell signal the MACD must cross below the signal line while the MACD is below zero OR the MACD must cross below the zero line while the MACD is below the signal line.
This example shows the MACD zero line indicator. The background is coloured in green (long signal) or red (short sell) when both conditions are met.
This screenshot is a close up of the MACD Zero line indicator. The coloured chart backgrounds indicate bullish and bearish markets, during which the two traditional MACD interpretations are both bullish or both bearish. This is an interesting indicator, which merits traders' attention.
Practical implementation
Open the chart of an instrument. In the WHS Proposals folder, select the MACD Zero line indicator.