How to Use the MACD Indicator

The defaults are 12 and 26-periods for the EMAs, with the signal line as a 9-period EMA of the MACD line. To identify good entries and exits for higher timeframe trends. The reason I say higher timeframe is because we normally see more false signals on the lower timeframe as the result of choppier behavior. This is also why the MACD is not as effective in ranging environments. The MACD uses three exponential moving averages to show price momentum. This trading strategy is based on MACD crossover and crossunder. It uses the supertrend to identify the trend it is trading on and takes trades accordingly.

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A cross of the MACD’s zero line is the same signal as a chart with two exponential moving averages. The MACD is useful because when the MACD is above zero, the underlying security is in an uptrend. Below we see Gamestop with a large bearish divergence from August to October. The stock forged a higher high above 28, but the MACD line fell short of its prior high and formed a lower high. The subsequent signal line crossover and support break in the MACD were bearish. On the price chart, notice how broken support turned into resistance on the throwback bounce in November . This throwback provided a second chance to sell or sell short.

Drawbacks of using MACD

First, you want the price to move into a market structure, especially a previous support or resistance level. Never blindly use indicators—MACD works best when you combine it with price action context. For example, turns in the MACD signal line near areas of support or resistance confirm potential reversal areas.

How to Use the MACD Indicator

If the price moves down into a support area, the MACD histogram should be below the zero line, i.e., showing bearish momentum. If the price moves up to resistance, the MACD histogram should be above the zero line, i.e., showing bullish momentum. Depending on your MACD strategy, you may only need to display the histogram as the rest of the indicator might not be useful to you. The indicator settings on your platform will let you keep the histogram and remove the other lines if you want. In the MACD system, it is very important to consider MACD histogram. The histogram includes vertical bars which show the difference between two MACD lines. It is above the zero line when the MACD lines are in positive alignment, meaning that the faster line is above the slower line.

Key MACD Indicators to Watch

A combination of 3, 10 and 16 can be used for intraday trading. 5, 35 and 5 can be applied to smaller timeframes as they are more sensitive. Sometimes it’s not that easy to determine Stop Loss and Take Profit levels. Libertex MetaTrader 5 trading platform The latest version of MetaTrader. The histogram is the difference between the first two elements . When MACD is above the signal line, the histogram is positive, and vice versa.

Divergences are always most effective when references prior peaks and on higher time frames. How to Use the MACD Indicator The most common indicators to identify divergences with are the Relative Strength…