Trade with Moving Average Convergence Divergence MACD How to Use MACD Indicator in a Trading Strategy?

Blue cells are calculated automatically and should be left alone. Text fields with reference information are marked with yellow. External Link – create what is the forex grid trading strategy the moving average convergence divergence formula in excel. This one is for all you bookworms that need to see exactly how the indicator works.

macd trading strategy

The histogram indicates the distance between both of the moving averages. Although you will never need to change the settings of this indicator, nor calculate MACD, still, it’s useful to know the mathematics behind it. The free app is not only a great portfolio manager, it also provides you with professional charts and indicators for every crypto market you can imagine. I use the 20 and 50 period moving average and I know the MACD is dependent on the moving average. I don’t know how to set the MACD to fit my moving average.

How does the MACD indicator work?

A trader can see that IF the price makes a higher high, but the MACD makes a lower high, there is divergence. So, if the trader follows the chart and the indicators, he knows ideally the MACD goes higher as before, to show the market is still strong enough and continue the trend. A lower high in the MACD would indicate weakness on the buying side and a potential reversal. A crossover is a tipping point when buyers or sellers change their position in the market. Like a pendulum, momentum swings from one direction to the other, bullish or bearish.

Sell ​​when on the histogram the two moving averages turn positive reaching high values ​​and a smaller bar is formed. There is a positive trend in the price chart, and local highs are constantly updated. This means that the price continues to move upward by inertia, and the bullish trend has actually already lost its strength.

macd trading strategy

From the output, you could see that our dataframe has all the components we discussed before. As the MACD and MACD signal line are derived from two EMAs, their value will be dependent on the underlying security. As such, it is not possible to compare these values for a group of currencies or across markets such as between the US SPX 500 and an exchange-traded fund​​. The Stochastic Oscillator lines cross at the overbought zone and MACD histogram has a positive meaning. And we close the deal when one of these conditions stops working.

Step-4: MACD Plot

To describe our results better, we will show you our sum of profit results on each type of the market. • An option allows you to trigger early crossings, which will influence entries and exits. The configuration window has also been designed to be easily readable and simple to use.

  • It then aims to ride this uptrend as long as possible before selling when the MACD signals the price is moving back into a downtrend.
  • • When backtesting a trading strategy, there are many factors to consider, not just trade entries to which you add a Take Profit and sometimes a Stop Loss.
  • However, it later proved to be effective on other timeframes.
  • The 50 EMA should be below the 110 EMA and the cross must have happened recently from the chart picture.
  • The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate.

Immediately after this, the MACD histogram moves to the positive area. The presence of both signals of the strategy allows us to open a long position at the close of the candle . Use MACD as a trend filter when looking for market entry points. If you are using signals from other indicators, the moving average lines can be an additional confirmation of the forecast. Let’s figure out how to read the chart and its MACD signals.

One could simply buy the cross, if desired, but a potentially more sound entry could be to buy or sell the retest of the level upon which the cross occurred. When forecasting crypto prices with the MACD, it’s important to think in broad terms. As the MACD line crosses above the signal line, price is likely going higher; if the MACD line crosses below the signal line, price is likely going lower. As the distance grows between the MACD line and signal line, the market is trending; as the distance shrinks, a bullish or bearish reversal grows increasingly probable. How this system works is that it aims to buy when the MACD confirms the price is moving from a down-trending environment to an up-trending environment. It then aims to ride this uptrend as long as possible before selling when the MACD signals the price is moving back into a downtrend.

The divergences of the extreme points of the price chart and indicator are similar, but more accurate. In this case, both moving averages and the chart can be used. Pay attention to the position of the chart relative to the zero line. For example, a rise above zero indicates the strength of the trend, while a fall indicates its imminent end. Moving averages going into the positive or negative area and crossing the zero mark are also perceived by many traders as evidence of the strength of the current trend. One of the main signals is a strong bullish or bearish divergence between the curves – overbought and oversold conditions.

macd trading strategy

To find more information on stops, you can check out this post on how to use the parabolic SAR to manage trades. The indicator’s sole purpose is to provide stop protection when in a trade. We’ve selected the S&P 500 E-mini contract because the security is less volatile and has consistent price moves. As the price of Bitcoin continued lower, the MACD was making higher highs.

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