Mastering MACD- Complete Guide- 10 ways to trade itThe Moving Average Convergence Divergence (MACD) is a versatile indicator that can help traders navigate the markets with precision. From trend identification to momentum assessment, the MACD provides multiple actionable insights. In this educational post, we’ll explore the key ways to use MACD effectively, with an example illustration accompanying each strategy.
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1. Signal Line Crossovers
The most common use of MACD is the signal line crossover, which identifies potential shifts in market momentum:
• Bullish Signal: When the MACD line (fast-moving) crosses above the signal line (slow-moving), it suggests upward momentum is increasing. This can be an entry signal for a long trade. Bullish crossovers often occur after a period of consolidation or a downtrend, signaling a reversal in market sentiment.
• Bearish Signal: When the MACD line crosses below the signal line, it signals downward momentum, often triggering a short-selling opportunity. Bearish crossovers can occur during retracements in an uptrend or at the start of a bearish reversal.
How to Use: Look for confirmation from price action or other indicators, such as a breakout above a resistance level for a bullish signal or a breakdown below support for a bearish signal. It's essential to avoid acting solely on a crossover; consider volume (stocks, crypto), candle stick formations and other market conditions.
Example: A bullish crossover on the daily chart on TRADENATION:XAUUSD indicates a potential buying opportunity as the price begins to rise. Add a stop-loss below recent lows to manage risk and look for a 1:2 risk:r eward in the next resistance.
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2. Zero Line Crossovers
The MACD’s zero line acts as a boundary between bullish and bearish momentum, making it a valuable trend confirmation tool:
• Above Zero: When the MACD line moves above the zero line, it confirms an uptrend, as the fast-moving average is above the slow-moving average. Sustained movement above zero often indicates a strong bullish trend.
• Below Zero: A MACD line below zero reflects a downtrend, indicating bearish market conditions. Persistent movement below zero confirms bearish momentum.
How to Use: Use the zero line crossover to validate trades based on other signals, such as candlestick patterns or trendline breaks. The crossover can act as a second layer of confirmation for existing trade setups.
Example: MACD on a crypto pair crosses above the zero line, confirming the start of a new bullish trend. Traders can combine this with volume analysis to ensure strong market participation.
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3. Histogram Analysis
The histogram represents the distance between the MACD line and the signal line, offering insights into momentum:
• Expanding Histogram: Indicates strengthening momentum in the direction of the trend. Larger bars show increasing dominance of bulls or bears.
• Contracting Histogram: Suggests weakening momentum, signaling a possible reversal or consolidation. Smaller bars indicate a loss of trend strength.
How to Use: Monitor the histogram for early signs of momentum shifts before a crossover occurs. The histogram can act as a leading indicator, providing advanced warning of potential changes in price direction.
Example: A shrinking histogram in a forex pair signals that the bullish momentum is losing steam, warning traders of a possible retracement. This can be a cue to tighten stop-loss levels or take partial profits. Conversely, an expanding histogram during a breakout confirms the strength of the move.
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4. Identifying Divergences
MACD divergences are powerful tools for spotting potential reversals:
• Bullish Divergence: Occurs when the price makes a lower low, but the MACD forms a higher low, signaling weakening bearish momentum. This often precedes a trend reversal to the upside.
• Bearish Divergence: Happens when the price makes a higher high, but the MACD forms a lower high, indicating diminishing bullish strength. This suggests a potential reversal to the downside.
How to Use: Combine divergence signals with support or resistance levels to enhance reliability. Divergences are most effective when spotted at major turning points in the market.
Example: On a TRADENATION:EURUSD chart, a bearish divergence signals an upcoming price reversal from an up trend to a down trend.
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5. Trend Confirmation
MACD confirms trends by staying consistently above or below the zero line:
• Above Zero: Indicates a strong uptrend. Look for pullbacks to enter long trades. The longer the MACD remains above zero, the stronger the trend.
• Below Zero: Reflects a persistent downtrend. Use rallies as opportunities to short. A sustained period below zero reinforces bearish dominance.
How to Use: Use MACD’s trend confirmation alongside other trend-following tools like moving averages or Ichimoku clouds. Ensure that market conditions align with the broader trend.
Example: Combining MACD trend confirmation with moving averages helps traders stay on the right side of the trend in a stock market index. For example, buy when both MACD and a 50-day moving average indicate an uptrend. Exit trades when the MACD begins to cross below zero or shows a divergence.
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6. Overbought and Oversold Conditions
Although MACD is not traditionally an overbought/oversold indicator, extreme deviations between the MACD line and the signal line can hint at stretched market conditions:
• Overbought: When the MACD line is significantly above the signal line, it may indicate a price correction is imminent. This often occurs after an extended rally.
• Oversold: When the MACD line is well below the signal line, it suggests a potential rebound. Such conditions are common following sharp sell-offs.
How to Use: Monitor extreme readings in conjunction with oscillators like RSI for added confidence. Look for reversals near key support or resistance levels.
Example: An extended bearish move with a large MACD-signal line gap warns traders of a potential price correction. This can signal an opportunity to exit. Pair this observation with a bullish candlestick pattern to confirm the move (in this example morning star)
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7. Combining MACD with Other Indicators
MACD works best when paired with complementary indicators to provide a more comprehensive market analysis:
• RSI (Relative Strength Index): Use RSI to confirm momentum and overbought/oversold conditions.
• Bollinger Bands: Validate price breakouts or consolidations with MACD signals.
• Support and Resistance: Use MACD signals around key levels for confluence.
How to Use: Wait for MACD signals to align with other indicator readings to improve accuracy. Cross-validation reduces false signals and increases confidence in trades.
Example: A bearish MACD crossover near a key resistance level reinforces a short-selling opportunity.
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8. Multi-Timeframe Analysis
Using MACD across different timeframes strengthens trade signals and provides context:
• Higher Timeframe: Identify the broader trend to avoid trading against the market. For instance, if the daily chart shows a bullish MACD, focus on long trades in lower timeframes.
• Lower Timeframe: Pinpoint precise entries and exits within the higher timeframe’s trend. The MACD on lower timeframes can help fine-tune timing.
How to Use: Align MACD signals on both higher and lower timeframes to confirm trade setups. This alignment minimizes the risk of false signals.
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9. Customizing MACD Settings
Traders can tailor MACD settings to suit different trading styles and timeframes:
• Shorter Periods: Provide more sensitive signals for scalping or day trading. Shorter settings react quickly to price changes but may generate more false signals.
• Longer Periods: Produce smoother signals for swing trading or position trading. Longer settings are less responsive but more reliable.
How to Use: Experiment with different settings on a demo account to find what works best for your strategy. Adjust settings based on the volatility and nature of the asset.
Example: A scalper uses a 5, 13, 6 MACD setting to capture quick momentum shifts in the market, while a swing trader sticks with the standard 12, 26, 9 for broader trends. Compare results across different markets to refine the approach.
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10. Crossovers or Divergence at Key Levels
Combining MACD crossovers with price action levels enhances the reliability of trade signals:
• Horizontal Levels: Use MACD signals to confirm reversals or breakouts at support and resistance levels. Crossovers near these levels are often more reliable.
• Fibonacci Retracements: You can combine MACD with retracement levels to validate potential entries or exits. Confluence with retracements adds weight to the signal.
How to Use: Wait for MACD signals to align with key price levels for higher probability trades. Confirmation from candlestick patterns or volume (stock and crypto) adds further credibility.
Example: A bullish MACD divergence aligns with a strong support level, signaling a strong buy setup. Add confirmation with a candlestick reversal pattern, such as a piercing pattern in our case, to enhance precision.
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Conclusion:
The MACD indicator’s flexibility makes it a must-have tool for traders of all styles. By mastering these strategies and integrating them in your trading, you can elevate your trading decisions.
Disclosure: I am part of Trade Nation's Influencer program and receive a monthly fee for using their TradingView charts in my analyses and educational articles.
Macd_divergence
December E-Mini Russell 2000 Index Futures Weekly Chart: 12/7/23Last week we saw the December E-mini Russell 2000 Index futures continues its bullish run with its third consecutive green candle closing into the Ichimoku cloud and above its 52-week moving average. With this move up, the MACD showed a bullish cross indication by crossing its signal line. RSI is trending up along with price. A continuation of this uptrend might find resistance at the top of the Ichimoku cloud (~1,906) and at the 200-week moving average (~1,930). A reversal to the downside might find support at the recent lows at the end of October (~1,640).
Please Note:
Commentary and charts reflect data at the original time of analysis (12/01/23). Market conditions are subject to change and may not reflect all market activity.
Awaiting doge breakout of channelDoge is in a declining parallel channel. Awaiting breakout of the channel, and clearing the moving averages will setup a long to 0.96, then 0.108 and 0.146 resistance levels.
The rsi is also supportive of such a move with it currently trending upwards and not in an overbought position.
The MACD is also beginning to trend upwards with the MACD line crossing over and signalling a upward trend.
The rate of change ROC is also trending upwards but a note of caution: a pullback in the roc and then the breakout would result in a stronger indicator signal.
Volume is also starting to trend upwards over the past week compared to the preceding period of 27 Feb to 08 Mar, this signalling a move is impending which will have market support (and is more likely to form a trend as opposed to just a temporary spoke or bull trap).
İf taking a long position, depending on risk appetite, putting in a filter of 3 days from the breakout to avoid a bull trap might be advisable.
Alternatively, rejection of the upper boundary of the channel and/or moving averages will setup a downward mice to 0.69 then 0.67 and then to the bottom of the channel.
Best approach is to await a decisive action and enter then with SLs based on chart structure.
BTC/USD analysis - price actionbased on previous view, I traded the level but on a random price to check if the zone works perfectly. Seems that zones work perfect only if it is meeting certain conditions. checking levels on bigger charts gives more clear view on your investment. Fib retracement on extra candles actually worked which-means having more candle in your area makes your trades more perfect. I will also start adding videos with other indicators in coming sessions.
DLocal $DLO is giving signs of recoveryNASDAQ:DLO is one of the new hot growth stocks that is in everyones radar. The good thing is that as it has been beating up for the las few months, it may be a good play.
Since December the MACD is been signaling a bullish divergnece. Now, after a good double-bottom it seems that the price has made a pause making a handle. This volatility compresion with low volume is the perfect signal for an explosive move. And that move may be upward.
Still growth stocks haven't been working so I would play very safe. Start with a buy at $34.50 with a small position and then add up as the price maintains the bullish move. Also, beware of the support and resistance zones.
The MACD explained ! All you need to know about it Hello everyone, as we all know the market action discounts everything :)
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In this video, I am gonna explain what is the MACD and how to use it and how to identify buy and sell signals using this indicator.
So what is the MACD, The MACD is a trend-following momentum indicator (so a momentum indicator is a technical analysis tool that allows us to determine the strength or weakness of a stock's price movement )
There are a lot of people that use the MACD when they analyze charts because it's very simple and it's very good but I always say never just use 1 indicator to analyze a chart, always try to use at least 3 this way u can make sure that the result is more accurate and the market most likely to move as u analyzed.
let's look at the theory behind the MACD before looking at a real-life example and how to identify buy and sell signals using this indicator :
The typical settings for the MACD are 12 26 and 9.
The MACD consist of 4 parts :
1) Zero line
2) MACD line
3) Signal line
4) Histogram
We start off with our zero line and this is where the MACD line and the signal line move around and basically so if the MACD is trading above the 0 line then it's bullish and if it's under then it's bearish.
Then we have the MACD line and it comes from the 12 26 section, and it gets calculated by subtracting the 26 EMA of the price out of the 12 day EMA of the price.
And after that we have a second line that gets plotted from the 9 section so basically, it’s a moving average for the MACD line so it tries to smooth the MACD line and give us some signals and it's called the signal line.(it's called a signal line because that's where we get our buy and sell signals from)
So on top of that, we have another part in this indicator which is called the histogram. So this histogram job is to show how close these lines will crossover, so when the distance between the MACD line and the signal line is far the histogram gets bigger and bigger.
So how do we use this indicator :
1) Crossovers between the MACD line and the Signal line.
* When the MACD line crosses above the Signal line then its a buy signal (Bullish Crossover)
* When the MACD line crosses below the Signal line then its a sell signal (Bearish Crossover)
2) The Histogram .
A lot of people use histograms as a way to predict when a reversal will occur.
We know that the MACD is a momentum indicator so it can show us when sell pressure is low. And that means it might be a good time to buy. And It can tell you when your long position is about to run out of steam and when you should exit.
3) Divergences between the MACD and the Market Price .
A Divergence means that the indicator is not moving in sync with the Market Price and a Reversal could happen (Note that Reversal trading is risky so please calculate your risks before using this Strategy)
always remember that :
Bullish divergence is when the Market price is going down but the MACD is going up.
Bearish divergence is when the Market Price is going up but the MACD is going down.
I hope I’ve made the MACD easy for you to understand and please ask if you have any questions .
Hit that like if you found this helpful and check out my other video about the Moving Average, Stochastic oscillator, The Dow Jones Theory, How To Trade Breakouts and The RSI. links will be bellow
WARNING: RSI and MACD divergence on multiple time framesGreetings traders,
as in the title I see RSI divergences on multiple time frames. From weekly to hourly. Also for MACD in some time frames. This doesn't mean that the price won't rise to 50-60K but we could be heading towards an arrest of the bull run and, eventually, a deeper retracement.
Just food for thought.
Have a nice day!
Deimos
Bitcoin USD Bearish CrabBITSTAMP:BTCUSD
BTC/USD is forming a Bearish Crab and is nearing the Potential Reversal Zone (PRZ).
This is happening after the formation of the Bearish Gartley failed to reverse (see in Related Ideas).
Notice the tight levels of the 1.618 XA projection and the extreme 3.14 BC projection.
The Crab pattern is usually volatile in the PRZ so prices might reverse quickly.
It would be wise to look for reversal candles on lower time frames.
Place stop loss at 2.0 XA projection.
take profit at 0.382 and 0.618 AD retracement.
Bonus (not in the chart):
in a 4 hour and 1 hour chart we can see a MACD divergence - another positive sign that price action might reverse soon.
Warning:
Point X might be a bit higher (a few days prior to the current X point).
If this is the case the PRZ and stop loss will be higher.
Let me know what you think.
Happy trading!
break through 2009 upper trend line FAKE or REAL it might sounds crazy, but if this break through holds. We are in for hundreds of points to come in the next few months.
KEEP IN MIND, that Elliott wave, Bollinger B, seasonality and many other analyst say that we r at a TOP or near a TOP ?!
time of watching closely anything could happen at any time. Just remember this cycle 2009 to today is longer and it's extended
much more than the previous ones. and every analyst you see talking about it They ALL FAILED AT Picking UP THE TOP SO FAR ?!
wish everyone the best.
TRV monthly chart has a huge MACD divergenceThe MACD divergence on the long term chart of TRV indicates prices should be near the $128 level. The topping pattern forming on the daily seems to add credibility that this move is over. The daily chart closed near the low today and the MACD on daily is diverging down. Those who follow other time frames will note the weekly while in a large double top too of course, has no MACD divergence. No point in fighting the tide on TRV though. Will look at some puts tomorrow not too far out of the money.
Oscillator Divergence Indicator by JDLimHow to apply the Oscillator Divergence Indicator by JDLim to your favourite oscillator.
1. Like the script "Oscillator Divergences by JDLim"
2. Add your favorite oscillator to your chart.
3. Apply the "Oscillator Divergences by JDLim" to that indicator.
4. Confirm the correct input source is selected.
5. Trade well and donate if you become successful :)
Link to indicator
Potential Bullish flag on ICNUSDHuge divergence on the MACD with clear trendline break, could drive price to 61.8 fib level. Try to get better entry cause another leg down is possible.
1) Never risk more than 2% of your account.
2) Try to be emotionless by applying your strategy to the pip.
3) Invest to yourself and then your capital. Try to educate yourself along with the signals and enhance your risk intelligence and your perception on how Markets work.
4) You do not have to be extremely precise to be highly profitable as long as you take the set-ups with big R/R.
USOIL potential movesThe price should decline even further with a potential leg up without touching the trendline in order to complete the 5 waves and the bearish crab formation. These conditions, with continuous divergence on the MACD, will provide better probabilities for the down move and even more pips to cover, since it will be of different degree.
1) Never risk more than 2% of your account.
2) Try to be emotionless by applying your strategy to the pip.
3) Invest to yourself and then your capital. Try to educate yourself along with the signals and enhance your risk intelligence and your perception on how Markets work.
4) You do not have to be extremely precise to be highly profitable as long as you take the set-ups with big R/R.
AUDUSD - Short Term Retracement In The Current Down TrendThe AUDUSD has been in a strong down trend.
The 2 hour chart shows bullish MACD divergence. Usually this creates a short term rally in the overall larger down trend.
I am waiting for a small rally to get back into the down trend.
All the best!
CISCO - Looking For A RetracementHello Traders,
I am new here and this is my first post. I am a simple trader that looks for the repetitive nature of the market.
There is Bearish MACD Divergence on both the 4 Hour and Daily charts for Cisco.
This could be a nice setup for year end profit taking with the DOW having had such a huge run up over the last 11 months.
All the best!
HOW TO FIND DIVERGENCE WITH MACD!!Every time that we are looking for Support and Resistance, we are always wondering when will our price finally go up or down, in order not to risk your accounts, you can use the following MACD strategy and look for any price divergence.
MACD Strategy:
Fast Length: 3
Slow length: 10
Source: Close
Signal Smoothing: 16
Happy Trading!!!