Moving Average Convergence Divergence indicator or MACD for short is one of the revered FX chart tools. It can be exercised either as an indicator in itself, or as a rest when you are mainly relying on other tools.
As its label suggests, the MACD traces the moving average, both fast and slow and it proffers whether they are diverging (moving away from each other) or converging (moving toward each other).
Two lines on the chart that come nearer to each other evidence converging and at the same time a histogram at the chart bottom depicts bars that are turning smaller. A harbinger that the current trend is either terminating or has closed.
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The faster line by default has a rapid reaction to price movements relative to the slower line. Thus, the slower line will be approached and eventually joined by the faster line. If it then separates or diverges from the slower line, this is often an indicator that a new trend has formed.
At the point of intersection of the two lines, the histogram bars will be zero and their axis crossed and their location reversed like if they were above the axis, they would now be under and if they were under, they would now be above. If a strong new trend is coming up, the bars will rapidly amplify in the new direction.
So this crossover could be made use of as a signal to place an order. A fast line crossing the slow line from beneath is a buy notification whilst a fast line crossing from top, is a sell tip.
But all is not well with the MACD, with some problems rendering it insufficient to be the sole trading tool. This is due to the fact that the fast line lags behind the true prices definitivelyl because it is an average of part prices. Thus trends could be waning in a volatile market change before seeing the beginning echo on the MACD intersection.
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In general, the MACD is desirable as trend strength indicator contrary to a direction indicator. Thus a number of traders would omit the crossover and concern themselves with assessing the length of the bars. However it is not suggested to trade using this histogram on the basis of divergence and selling just when price begins to turn inappropriately.
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If you are just starting out in Forex trading, you are perhaps better prescribed to base your trading decisions on other indicators on FX charts and resort to the MACD only for guidance.
Disclaimer: FX investing is speculative, can end up in substantial losses, and is not suitable for everybody.