The MACD indicator, which stands for moving average convergence/divergence, was invented by Gerald Appel in the late 1970s. The purpose of the MACD indicator is to show changes in the strength, momentum, and direction of the current market.
In 1986, Thomas Aspray added the bar graph or “histogram” to the indicator, showing divergence between the MACD and the signal, in an effort to anticipate MACD crossovers. This became the industry standard for technical traders using the MACD indicator.
Note: Used correctly, the MACD indicator can be very useful for spotting certain high probability trading setups. It has been the most useful lagging indicator in several trading systems that I have used.
The default MACD indicator in MetaTrader 4 (MT4), however, does not use Appel and Aspray’s traditional formula. This can be confusing to traders, especially if they’ve come to the Forex market after trading other markets.
Fortunately for us, this is an easy fix. Today, I’m going to show you how to get the best MACD indicator for MT4, and why I believe you should use it if you’re planning to trade any MACD setups.
The Best MACD Indicator for MetaTrader 4 (MT4)
In the image below, there are two versions of the MACD indicator. The top indicator window is the custom MACD True indicator, which displays the indicator in the standard way. The MACD line (blue) is the difference between the 12-period EMA (exponential moving average) and the 26-period EMA. The average or signal line (red) is a 9-period EMA of the MACD line. The bar graph or “histogram” shows the divergence of these two lines.
Now look at the bottom indicator window, which is the default MACD indicator for MT4. Notice that only a bar graph and red line are displayed. The default indicator displays the traditional MACD line as a bar graph. The signal line is displayed normally, but there is no bar graph or “histogram” showing the divergence between the MACD and the signal line.
I hesitate to say that this is incorrect because an indicator can display whatever you would like it to display. I will say that there are some obvious disadvantages for technical traders that would like to use the default MT4 indicator for trading MACD divergence.
Again, take a look at the image above. I marked the bullish divergence with green lines and the bearish divergence with red lines. Notice, in the first bullish example, that the MACD displayed on both indicators showed momentum slowing (double bottom) while price continued lower. This is a form of divergence that can be traded using either indicator.
However, the next four examples are traditional MACD “histogram” divergence, and can only be traded using the custom indicator. This is why I believe that the MACD True indicator is the best MACD indicator for MetaTrader 4 (MT4). You can see, just from this one chart, how useful traditional MACD divergence trading can be.
- Download and extract the custom MACD True indicator.
- Place it in your “Indicators” folder (File > Open Data Folder > MQL4 > Indicators).
- Restart MT4.
- Open your “Navigator” window, if it’s not already open (Ctrl+N).
- Drag the MACD True indicator onto your chart.
- Adjust the settings and colors, if needed, and hit the “OK” button.
The MACD indicator can be one of the most powerful lagging indicators that a technical trader can use if you know how to use it correctly. It’s one of the main components in many profitable trading strategies, and it’s effective in every market.
Although the default MACD indicator in MT4 can still be useful, I believe the custom MACD True indicator is the best MACD indicator for MetaTrader 4 (MT4). If you found this custom indicator to be useful as well, please share this article with other traders.