MACD STRATEGY (Best MACD trading strategies )

Moving average convergence divergence (MACD) is a financial market indicator that can discover opportunities. Because understanding how to use the instrument is critical to a trader's performance, we've looked at three common MACD techniques. 

  What is MACD? 

 MACD, or the moving average convergence divergence, is a trend following and momentum indicator that calculates the difference in two moving averages of prices. It can be used to determine the direction of a trend. MACD is calculated by subtracting the 26-day exponential moving average from the 12-day exponential moving average and dividing it by a 9-day exponential moving average of its difference. The MACD line can be used to identify trends as well as divergences that may signal a trading opportunity. A bullish divergence occurs when prices rally but the MACD makes lower highs and higher lows, signaling that buyers are stepping in at lower prices than sellers are willing to sell at. . Conversely, a bearish divergence occurs when prices decline but the MACD makes higher highs and lower lows, signaling that sellers are stepping in at higher prices than buyers are willing to buy at.The exponential moving average is an indicator of price momentum and typically rises as prices rise and falls as prices fall. The 12-day exponential moving average typically reflects the momentum of short-term momentum. The 26-day exponential moving average is a long-term indicator that reflects the momentum of medium and long term trends.Search on "exponential moving average"

  MACD TRADING STRATEGY TO FIND AND ENTER A TREND

Finding the trend is perhaps one of the most crucial steps in any technical trader's trading process, and while this may appear to be a challenging undertaking, the MACD may be quite valuable in this regard. There are three steps to finding and entering a trend using MACD:

 1. Determine the trend's direction. 

 2. Use MACD crossover to look for opportunities in the trend's direction.

 3. To manage risk, use the MACD zero line.

 1. Determine the trend's direction. 

 The 200-day moving average is one tool that traders can use to identify trends. If a trader wants to enter a position, they can use the 200-day moving average on the price chart to see if prices are routinely trading above the typical range. The EUR/USD chart in the example below demonstrates a dominant rising trend, which is reinforced by prices constantly trading above the 200-day moving average. When this occurs, the buyer can proceed to the second step, which is to identify potential entry opportunities

2. Use MACD crossover for opportunities in the direction of the trend

Once the trading bias has been determined, traders will begin looking for buy signals that are pointing in the same direction as the current trend.

When the price is ABOVE the 200-day moving average in the chart above, the MACD crossover can be used as a potential entry signal.

A trader could look to enter a long position at the first highlighted MACD crossover, as shown on the chart. At this moment, the MACD line (blue) is above the signal line (red), and the price is still trading above the 200-day moving average.

3. Use MACD zero line to manage risk

When trading trends, it is critical to understand that they will eventually expire. When there is a bearish crossover in an uptrend, such as the EUR/USD, it can indicate that the momentum of the uptrend is decreasing and that it may be shifting direction.

A trader holding a long position may want to consider exiting the position at this moment, but it could just be a temporary pullback. When the bearish crossing happens, traders should look for the signal line to pass below the zero line, which would confirm the downward trend. They can exit the trade at this stage

MACD STRATEGY TO IDENTIFY TIRED TRENDS

Trend following is a popular method among both new and seasoned traders. The vast majority of traders have entered a trade at the tail end of a trend only to have it reverse. Can the MACD trading approach assist traders in identifying a stale trend?

MACD divergence is an excellent indicator of changing trends. Divergence happens when the indicator moves in the opposite direction of the price, indicating that the momentum of the trend is slowing.

Divergence occurs when the Germany 30 makes a higher high on the price chart while the MACD makes a lower high. This is our first indication that the present trend's price momentum is waning. Traders should consider decreasing and potentially closing any existing long holdings at this stage.

After identifying divergence, traders can check for execution using a standard MACD crossover. Traders who have entered long positions can quit the trade at the next bearish crossing (when the blue MACD line crosses below the red signal line in a downtrend), safeguarding them from losses if the trend reverses.

Although the MACD trading approach is frequently used to discover potential entry triggers, it may also be used to determine exit triggers, as demonstrated by divergence. Although the timing of an entry is critical, risk management should never be overlooked.