Educational Series: Trading with the MACD (Part 1)
The MACD is a momentum indicator best used in trend-following scenarios. Overly simple to use, a crossover of the MACD triggers a buy/sell technical signal. The MACD can be used in all timeframes but is best suited for the H4 and H1 timeframe.
The MACD indicator has 4 components :
1) MACD line (12 EMA – 26 EMA) - Blue line
2) Signal line (9 period EMA) - Orange line
3) Histogram - Green/Red verticle bars
4) Zero line
However, take note that as the MACD comprises of a composition of moving averages, it is a lagging indicator. This means that if you traded ONLY using the MACD, you could be entering into trades LATE.
Check the chart for 4 examples of great sell signals. These sell signals meet 3 key conditions:
1) The previous TREND is downward,
2) Price is reversing at a RESISTANCE level, and
3) The MACD line CROSSOVER the signal line, ABOVE the zero line.
Remember: Take Profit levels should be placed BEFORE the next support level, while Stop Loss levels should be placed BEYOND the immediate resistance level.
The MACD indicator has 4 components :
1) MACD line (12 EMA – 26 EMA) - Blue line
2) Signal line (9 period EMA) - Orange line
3) Histogram - Green/Red verticle bars
4) Zero line
However, take note that as the MACD comprises of a composition of moving averages, it is a lagging indicator. This means that if you traded ONLY using the MACD, you could be entering into trades LATE.
Check the chart for 4 examples of great sell signals. These sell signals meet 3 key conditions:
1) The previous TREND is downward,
2) Price is reversing at a RESISTANCE level, and
3) The MACD line CROSSOVER the signal line, ABOVE the zero line.
Remember: Take Profit levels should be placed BEFORE the next support level, while Stop Loss levels should be placed BEYOND the immediate resistance level.
