Like all materials on our site, this article is a squeeze and quintessence of useful information. You are guaranteed to understand how to use the super popular MACD indicator, watch the video tutorial and be able to download MEGA PAK Modified MACD with Alerts, arrows, stochastics, RSI and whatever else you want. Read quickly! Learn to effectively use one of the most popular technical analysis indicators – MACD (Moving Average Convergence-Divergence), in Russian reads as Moving Average Convergence-Divergence… It is on the moving averages that the entire work of the indicator is built. By the way, the acronym MACD is pronounced correctly as “Em Hey C Dee“, but in the colloquial speech of traders one can often hear the following names:
- MACD indicator
- Sometimes even McDuck …
So don’t be surprised if you hear something like this. It collects information about quotes and provides analytical insights and trading signals that may not be obvious on a chart. Next, we read the full description of the MACD indicator.Gerald Appel developed MACD in 70s years and the indicator immediately became very popular among traders around the world. Traders use the MACD to determine the direction of the trend, momentum, and possible pivot points. It is also used for signal confirmation from other strategies, but it can also provide its own trading signals.
Histogram MACD = 12EMA – 26 EMA Signal line – 9 EMA When they say: MACD 12, 26, 9 – I mean the indicator settings, which are described in more detail below.
Setting MACD for different TFs
The formula above shows the standard settings of the indicator MACD (12, 26,9), they are installed by default in the MT4 terminal. These MACD settings for different timeframes are universal and in principle you can not change… An exception to this rule may be the requirement for a specific trading strategy, then set everything in accordance with the manual for this strategy. This is a general tip, but if you really want to get the best MACD settings, you can try these.
- For H1: fast EMA 14slow EMA 30, MACD SMA 10
- For a 30 minute chart: 12, 26, 9
The settings of the MACD indicator for small timeframes can be taken as follows:
- For 15 minutes: 8, 20, 8
- For 5 minutes: 10, 24, 8
- For M1: 10, 28, 8
But my recommendation is still to trade with standard settings on timeframes, starting from the sentry and higher. You can, of course, set the MACD indicator for 1 minute, as in the example above, but the fact is that the small timeframes are very noisy and you will definitely have periods when there will be many false signals and losses.
Trading with the MACD indicator and strategies
There are three main strategies for using the MACD indicator. Each has its own strengths and weaknesses. Combining these strategies with other methods of technical analysis helps to level the weaknesses and highlight the strengths of the indicator, then trading on the MACD will become more profitable. That is, I recommend using confirmation signals other indicators or analysis methods, such as Japanese candlestick patterns. And so that you can confidently use such combinations, you first need to understand which signals are shown specifically by the MACD itself and how to use them. There are three signals.
1. Crossing the zero line
The MACD histogram crosses the zero line in the indicator window. When it crosses the zero line from top to bottom (i.e., the histogram becomes below the zero line), it is a signal to sell. When the bottom is up (the bars of the histogram are above the zero line) – a buy signal. Cons of this method: When the market is flat, there will be a lot of false signals, as the line can cross the zero line many times from different sides. But in a strong trend, this is a very good signal. Second minus: highly delayed signal. If the trend turns out to be long, then this is not even bad, but for short-term trends this method will miss completely. Or you will enter right before the end of such a trend, which of course is very bad. You can also logically understand that when the MACD line is above the zero mark, this indicates an uptrend, below – a downtrend.
2. Crossing of the MACD histogram with the signal line
Such a signal reacts much more quickly to a trend change and is much more preferable among most traders, compared to the crossing of the zero line, which we talked about above.
- According to this method, the signal on purchases occurs when the MACD histogram crosses the signal line down up… Thus, the histogram becomes higher and the signal line is below it.
- Signal on sales will be the crossing of the signal line by the histogram top down… Thus, the signal line will already be above the histogram.
Pros: both signals work well in a trending market and filter out small price fluctuations, allowing you to stay in position longer. Minuses: Noisiness, that is, significantly more false signals. The screenshot also shows this. Therefore, I do not recommend trading only according to the IADI. No additional confirming signals will be minus often and it will hurt to beat the deposit. How to avoid this:
- Open positions only in the direction of the long-term trend and ignore signals that go against him. To determine the long-term trend, it will be useful to look at the older one in relation to the traded timeframe. You can additionally apply, for example, trend lines or other indicators to determine the direction of the trend.
- Use additional confirmation signalssuch as, for example, Japanese candlestick patterns. I highly recommend reading it.
3. Divergence of the MACD indicator
Divergence – divergence. Divergence / inconsistency between the MACD histogram readings and the price on the chart. They appear more often on lower TFs. Below you will understand what is meant.
- Bearish divergence on MACD occurs when the price on the chart demonstrates new tops, but not on the MACD histogram. On the contrary, it begins to decline.
- Bullish divergence occurs when the price makes new lows and the MACD histogram begins to grow in the indicator window.
The presence of divergence is a signal that the price momentum has weakened and preparing for reversal… This is a very strong signal, consider it! Minuses: divergence doesn’t tell us when exactly there will be a reversal, she only tells us that he preparing… That is why I am talking about the need to use MACD in combination with other indicators and analysis methods. Such as Japanese candlestick patterns or others.
Setting stop losses and take profits
MACD as such does not give us information about the levels of setting targets and stop orders, therefore, standard methods are used, for example, the nearest strong support-resistance levels. See the video for more details.