Additional levels might be required by a certain strategy for tracking the signals. For example, selling of an asset at the intersection of the top level on the chart. The simplest MACD strategy does not require any additional indicators. MACD signals alone will be sufficient for determining the entry points. The recommended stop loss level is set below the minimum level of the candlestick that determines the entry point when buying and is above the maximum level when selling.

Convergence is expressed in approaching the moving direction of the MACD histogram and the price chart.

The chart shows how the price movement slowed down after a strong downtrend, reversed and then went down again, hitting a fresh low. Although it is now shown in the chart itself, the indicator signals in advance, which is exactly what makes it valuable. Divergence differs from convergence in that the lines in the chart and at the top of the histogram do not converge but move in different directions the chart line goes upwards whereas the line in the indicator window moves down. The buy and sell signals will then be as follows:. Although this system can also result in losses, they are compensated by bigger profits due to the strong trend.

However, technical analysis experts agree that the charts can have up to five indicators. It will allow not only to enter the market in the correct trend direction but also take maximum profit. It consists of a histogram and two lines derived from moving averages. It is important to note that the moving averages used are exponential, and thus will give greater weight to more recent price action.

Can Pivot Points Be Used for Trend Trading?

This helps traders identify whether a trend is getting stronger or weaker based on the slope of the MACD lines. The histogram simply shows the difference between the two lines, giving a visual representation. Thus the histogram is positive when the faster EMA line is on top and is negative when the faster EMA line is on the bottom.

Each trader has their own preferred MACD settings, but in general, it is agreed that the best settings for day trading using the MACD are and That said, it is important to recognize that the MACD is a lagging indicator and really needs to be combined with another indicator to truly shine. Many professional traders in the stock market, forex, commodities, and other assets rely on MACD signals. After all, the indicator is still based on past prices and thus can be unreliable at certain market conditions. The two most common MACD layouts are displayed in the following chart.

It consists of MACD signal charts and histograms. Despite the visual differences, both types of MACD have the same ability to provide ideal information about price trends, overbought and oversold signals, divergence indications, and so on. This results in the formation of MACD's main line. As a trader, you might not need to know the calculation of the MACD parameter, but if you want to program and modify an EA Expert Advisor , you must know how to calculate these parameters:.

On the MetaTrader platform, the main line is shown as a histogram and the signal line is in the form of a chart. Meanwhile, OSMA is shown as a separate indicator.

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The extended version is similar to the MetaTrader platform layout; the histogram has two distinct colors to differentiate the bullish and bearish signals. However, it can be shown if you really need it by setting the SMA signal to 9. In the picture above, you can see a strong trend along with EMA and EMA lines that are getting wider in some places. If you compare it with the MACD histogram, the EMA widening usually ends with a crossing that is in line with the histogram's change of position from the 0 level. The blue histogram shows a strong bullish sentiment and the red one shows a bearish sentiment.

With the colored histogram, you can also anticipate the buy signal earlier when the bullish sentiment is strong A area. A similar thing happens for the sell signal anticipation; when a bearish sentiment can be detected earlier in the C area, which is eventually followed by a decline from MACD histogram below the 0 level D area. However, it is better to confirm the signals with price action or other indicators to get better profitability. As mentioned before, the MACD indicator can help us avoiding loss caused by trading against the trend.

What happens frequently is when the candlestick formation and trend indicator such as Bollinger Bands show a trend reversal, MACD usually shows the opposite.

MACD Trading Strategies

You can just anticipate to open trades based on a price action method without MACD indicator assistance. Yet, you should know that price action analysis is quite tricky and very subjective. It also needs adequate experience for understanding the price patterns correctly. In this case, the MACD indicator can help to anticipate the trend movement. The candlestick pattern shows a pin bar formation reversal. The price starts to go down after the lowest price of the bar is re-visited.

They go together with the breakout from Bollinger bands.

It is then safe to assume that a reversal to the downside will be formed. This seemingly perfect set up will attract you to open a sell entry with a stop loss above the pin bar's high. However, what happens later? As described in the chart below, your stop loss is quickly triggered before your sell position generates a substantial profit. Only buy signals will be accepted.

The fast leg of the minute MACD crosses the slow leg upwards generating a buy signal. The stop red line and profit target green line appear automatically when the position is opened. In both cases the open position is closed with a profit when the minute MACD crosses back in the opposite direction. This example shows a short sell signal. The red background in the chart indicates that both the 1-hour and 4-hour MACDs are bearish. Only short sell signals will be accepted. The fast leg of the minute MACD crosses the slow leg downwards generating a short sell signal.

The market price nearly reaches the profit target around 14h The open position is closed a bit later when the minute MACD crosses back in the opposite direction.

Most Profitable MACD Trend Forex Trading Strategy - FX ...

This example shows a day with two short sell signals. In both cases the open position is closed when the minute MACD crosses back in the opposite direction. These screenshots show back-tests over a 7-year horizon for a number of market indices and commodities.

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The strategy can be applied to all instruments so you can back-test and optimize whatever you are interested in. Combining multiple time frames usually seems to yield good results in trading. Traders should look into such strategies.