How to Automate a MACD Trading Strategy

Together with two or three appropriate indicators, MACD will create a system with positive ratio between good and false entry points. The MACD indicator, despite being one of the first indicators to be developed, is still widely used in today’s modern markets due to its effectiveness. One of the core reasons it has remained at the forefront of technical analysis​ portfolios is its ability to predict potential market direction in conjunction with price action. ​ that is used to identify new trends and decipher if they’re bullish or bearish.

macd trading strategy

Let the order close by take profit equal to two stop losses . The BTCUSD chart above shows a bearish divergence marked with diagonal blue lines. As long as the MACD histogram is growing, we can be sure of the strength of the bullish trend. A little later, a bar is formed, marked with a red circle. It is lower than the previous one, which indicates a decrease in buyers’ activity.

Complex strategy with MA and RSI

The 26 represents a moving average of the previous 26 bars. The 12 represents a moving average of the previous 12 bars. With a MACD chart, you will usually see three numbers that are used for its settings. After all, a top priority in trading is being able to find a trend, because that is where the most money is made.

  • Let the order close by take profit equal to two stop losses .
  • Therefore, in scalping strategies, the MACD should be used together with other tools as a filter for faster signals.
  • An oversold MFI reading and a bullish cross of the MACD lines generates a long signal.
  • This divergence ultimately resulted in the last two years of another major leg up of this bull run.
  • Becareful though… divergence in macd is also often seen in consolidating prices and interpreting it is more art than science.

In theEURUSD chart above, the blue circle marks the moment when the blue fast MACD crosses the signal line from the bottom up. As expected, after this signal appeared, the price action turned upwards. The fast curve crosses the slower line from the top down and is in the positive zone pushing the MACD to turn negative. Sell signals start to prevail in the market which is a sign of an upcoming downward reversal.

The MACD indicator and the MACD trading strategies: A Detailed Guide by Good Crypto

There is also the additional criteria that the price should be above the 200-period moving average to avoid taking trades against the direction of the major trend. Other tabs will allow you to set the colour range, change the timeframe or add levels that are a straight line on an indicator (it’s set to “0” by default). 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 true strength index is a momentum oscillator used to provide trade signals based on overbought/oversold levels, crossovers, and divergence.

macd trading strategy

From now on, we will refer to the Moving Average Convergence and Divergence as MACD. This article aims to have the MACD explained so that you can read and use it. Rayner Teo is an independent trader, ex-prop trader, and founder of TradingwithRayner.

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When the MACD line crosses up on the Signal line, that suggests bullish momentum. When the MACD line crosses down on the Signal line, that suggests bearish momentum. The more deviated the MACD and Signal lines become from the Zero line, the more likely a reversal is to occur. Although many people often find them similar, the MACD and Stochastic indicators are entirely different.

The chart below highlights this standard crossover strategy. Profitable entry points are highlighted by the green vertical lines, while false signals are highlights by the red lines. If the market price was found to be trending upward – reaching higher highs and higher lows, as well as breaking key levels of resistance – traders might enter long positions. While traders might opt to enter a short position if the asset was in a downtrend, characterised by the lower highs and lower lows, or breaks in support levels.

macd trading strategy

For the purpose of our demonstration, we have set the color of this indicator to yellow. Taking the “human element” out of trading the MACD is critical to success. Many crypto traders use the indicator inconsistently ― if you’re going what is the forex grid trading strategy to trade the MACD, integrate it into a comprehensive trading plan. It’s best to wait for further evidence when the MACD line and signal line are close together. Also, periods featuring frequent crossovers require additional patience.

If the market is flat for few days then use 4hr tf it works amazingly well. The strategy can apply to any market, timeframe, or risk management strategy so long as the rules are consistently followed. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate. 75% of retail client accounts lose money when trading CFDs, with this investment provider.