What is MACD? A MACD trading strategy example

The default 12, 26, and 9 settings of the MACD can be adjusted to create more or fewer signals from the indicator. Shorter values generate more signals, while longer values create fewer signals. The “MACD line” is the difference between https://www.bigshotrading.info/ the 12 and 26-period EMAs. The blue line is the MACD and the red line is the signal line. When the blue line crosses above the red line, it is a signal to buy and when the blue line falls below the red line, it is a trigger to sell.

• The initial cross occurred at the end of September and the MACD moved further into negative territory as the 12-day EMA diverged further from the 26-day EMA.
• Because the indicator measures momentum, analysts believe the price action will follow the momentum.
• The highest quality signals often occur when the MACD line is far above zero when the bearish crossover occurs.
• This MACD strategy is the best explanation I have come across .
• Either indicator may signal an upcoming trend change by showing divergence from price .

During corrections in an uptrend, the MACD drops to the signal line but as the price resumes its uptrend the MACD rebounds off the signal line. This formation, which looks similar to a hook, can give a good entry opportunity. Appel highlights how two MACD indicators can be used during strong trends, with the more sensitive one being used for entries and the less sensitive one being used for exits. Here is my first indicator I made after 3 days of hardlearning pine code . This is a DCA Strategy backtester + signals, built to emulate the 3Commas DCA bots.

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Notice in this example how closely the tops and bottoms of the MACD histogram are to the tops of the Nasdaq 100 e-mini future price action. This occurs because the MACD is accelerating faster in the direction of the prevailing market trend. A possible buy signal is generated when the MACD crosses above the zero line. This is seen on the Nasdaq 100 exchange traded fund chart below with the two purple lines.

• This scan is just meant as a starter for further refinement.
• This formation, which looks similar to a hook, can give a good entry opportunity.
• In other words, they are likely to trigger your stops when you enter on a valid MACD trigger.
• Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.
• The histogram reversal is based on using known trends as the basis for placing positions, which means the strategy can be executed before the market movement actually takes place.

The orange area highlights a period of positive MACD values, which is when the 12-day EMA was above the 26-day EMA. Notice that the MACD line remained below 1 during this period . This means the distance between the 12-day EMA and 26-day EMA was less than 1 point, which is not a big difference. When the MACD line crosses above the signal line, traders often interpret it as a potential buy signal. Alternatively, the MACD line crossing below the signal line is considered a selling opportunity.

Disadvantages of Using RSI

Because of its popularity, it is a standard technical indicator included in every trading platform. TrendSpider is a suite of research, analysis, and trading tools (collectively, the “platform) that are designed to assist How to Use the MACD Indicator traders and investors in making their own decisions. Our platform, its features, capabilities, and market data feeds are provided ‘as-is’ and without warranty. On the left side, we see an example of bearish divergence.