Using different technical analysis tools and indicators is very beneficial for successful and profitable trading. One of such indicators is MACD. MACD is an abbreviation for «moving average convergence/difference» indicator or oscillator. Basically, MACD is the dissimilarity between two moving averages. Many professional traders are fond of this oscillator.
Unfortunately, newbies can have some problems with understanding and using MACD. However, it is just at the very beginning. When you find more information about MACD and use this tool, you will realize that it is very convenient. The best feature of the MACD strategy is that it offers trend monitoring and momentum.
MACD indicator is created with the help of three very important ingredients. Without understanding what they are, it will be difficult to deal with the MACD chart. MACD chart consists of three elements. The first one is the MACD line. The second one is the signal line. The last one is the histogram. If you work with the MACD and moving average strategy, you will find these elements in the chart.
To understand what the first line is, it is necessary to find out the meaning of the term “exponential moving average” because MACD line is created on the EMA basis. EMA is a type of moving average where the freshest data plays a very important role. The dissimilarity between EMA and SMA is in the speed of reaction on the recent changes with price. The most commonly used EMAs are 12-day and 26-day averages. If to subtract the last mentioned EMA from the first one, you will get the MACD line in the graph.
A signal line always stays very close to the MACD line because it is just a 9-day period average of MACD line. The goal of this line is to smooth out the daily moment of the MACD line. The last ingredient is the histogram. The goal of the histogram is to show the dissimilarity between the first two ingredients. Hopefully, now you understand a little bit more about MACD charts and MACD trading strategy.
After this, it is necessary to get to know how the MACD line moves, and how it is possible to take maximum benefit from using some MACD and moving average strategy. First of all, it is good to explain what meanings the MACD line positions and movements have. When it is above EMA, the markets move up. When the situation is opposite, then the markets go down. If there is no dissimilarity between moving averages, MACD line will be at a zero point. When the 12-day period average is above the 26-day period average, the MACD line has a position above the zero point. If the situation is opposite, then the MACD line has the position below the zero point.
When you know enough about the MACD chart, you also need to learn how to get profit from using the MACD trading strategy. One of the most commonly used methods to do this is Signal Line Crossovers. We have already mentioned that the signal line stays quite close to the MACD line. However, sometimes, the MACD line traverses some point of the signal line. You can receive two crossovers - either bullish (above) or bearish (below). When one of the crossovers happens, it is good if both lines tend to move as far as possible from each other, because it means that a trend might appear in the cross direction.
Apart from the general information on the MACD graph and usage of MACD trading strategies, it is also vital to get to know about 4 MACD hour forex strategy and MACD day trading strategy.
4 hour MACD forex strategy is one of the momentum strategies. It is very convenient when you don’t want to monitor the situation in the chart for a long period of time because it breaks one session (24 hours) into six bars that include information for every four hours. MACD trading strategy is quite simple, but it also has its features
First of all, it is focused on looking for patterns on the MACD oscillator. This 4 hour MACD forex strategy utilizes several support and resistance levels that are represented by 5 moving averages. It utilizes two simple moving averages - 200-day period average and 89-day period average. Apart from this, it uses three exponential moving averages - 365-day period average, 21-day period average, and 8-day period average.
The disadvantage of this MACD and moving average strategy is the great number of averages. On the one hand, they give a variety of support and resistance levels, but on the other hand, they mess the chart. In any case, this strategy can be really helpful for the momentum trading as it gives a good starting point for a long period of time - 4 hours and more. This strategy helps to take partial profits at different levels. It contains some risk as any other strategy, but it is also possible to get a good profit when using it. It is just necessary to learn a little bit more about the strategy and test it.
When it comes to day trading and day trading strategies, MACD indicator can be very convenient. Many strategies use this indicator to get a good profit. However, before describing the MACD day strategies, it is important to provide some information on what day trading is. Day trading can be defined as a trading during the working time of a single day. In other words, every position is closed before the market is closed. The number of such strategies is great. However, only some of them use MACD indicator.
One of them is the MACD day trading strategy that combines MACD and Relative Vigor Index. The combination of these instruments is very effective because it matches crossovers. In the chart, you will see two lines that create MACD and two lines that create Relative Vigor Index. When one of the indicators shows a crossover, there are high chances that the other one will show a crossover in the same direction. If such it happens, a trader makes a decision to buy or sell and hold his/her position until MACD indicator signals close it.
One more interesting MACD trading strategy is the one that combines MACD and Awesome Oscillator. This is one of the simples day trading strategies. A trader makes his/her move only when he/she gets the MACD signal that is confirmed by the Awesome Oscillator. The problem can occur when a trader gets the signal only from MACD. When this signal isn’t confirmed by Awesome Oscillator, it is better to hold a position until there is a confirmation signal. When only the Awesome Oscillator gives the opposite signal, it is also better not make any moves.
These are the simplest day trading strategies that include MACD indicator. However, you can find some more. For example, there are strategies that combine MACD and TRIX, MACD and TEMA, MACD and Money Flow Index, and so on. Every MACD day trading strategy has its strong and weak points, but it is only up to you to decide which one works best for you.
Using MACD trading strategy can be very effective and profitable. MACD indicator or oscillator is a great tool that helps to make the right move when trading. If you are one of the traders who rely on technical analysis, you'd better find out more about MACD indicator and test some systems that include it. Apart from this, it can be very beneficial to use MACD indicator in combination with some other indicator. To trade successfully can be quite complicated - especially when you are a newbie, but information and practical experience can solve this problem.