The MACD, also known as the Moving Average Convergence Divergence, is one of the simplest and most popular indicators used by traders. In fact, it is the next soft indicator that shows the relationship between the two moving averages. So first let’s use it in our chart like that. You want to go to the seventh section. Type in MACD and click one more. Now before we get started, we first need to know how the MACD works.
WE SEE HERE THERE ARE FOUR THINGS IN THE MACD.
1) First, we have two lines, the MACD LINE and the signal line. Note the difference between the two. The MACD line moves faster and is more sensitive to price changes, which will be the main focus of the MACD index.
1) Compared to that in the signal line that responds to amazing changes, so it gives you a smooth look.
3- Next we have a histogram that represents the difference between the MACD line and the signal line, for example. If the line exceeds the signal line, the histogram will turn green, and if it skips below, the histogram will turn red.
1) The gap between the MACD line on the signal line also affects the size of the histogram. As you can see if the two lines are separated, the histogram is getting bigger. And when the two lines get closer, the histogram becomes smaller.
4- Finally, we have an O-line representing the center of the Mac, the index. Now the way traders use this indicator to pinpoint momentum by looking at the crossover between the MACD Line and the signal line.
Let me give you an example. If the MACD line jumps above the signal line, it indicates that the market has continued to move higher. And if you jump below, it shows that the market is only down.
Traders can also use this Instagram profile to gain the power of the momentum itself. When the MACD jumps above the signal line while the histogram is growing, it indicates that the upward pressure is increasing.
Similarly, if the histogram decreases in size, it indicates that the upward pressure is getting weaker. No, we have already found that the MACD is based on moving months.
WHY SHOULD YOU USE THE MACD AND NOT THE MOVING AVERAGE?
Let me give you a quick comparison.
So here we have foremen set in default settings of 12 and 26 and above here and we have two moving average values set at the same values as MACD 12 and 26. Note the interaction between the two indicators. Every time we have a crossover on the moving averages. We also have a crossover on the MACD, but it is between the MACD line and the O-line.
But keep in mind that what we want in the MACD is out of place. But instead a crossover between the MACD line and the signal line, and as you can see. The crossover on the MACD provided a much earlier entry signal compared to the crossover on the moving average. That’s why I choose it as my indicator of momentum.
WHAT ARE THE DIFFERENT STRATEGIES YOU CAN USE WITH THE MACD INDICATOR?
First, the common mistake made by marketers is that they use the index alone. Let me show you why it is such a bad idea to use MACD alone. So here we see that the whole market is only below. However, the MACD falls higher. Therefore, notice how the signals contradict each other. The MACD shows a bullish trend, but the market is only down. This is why you should not use the MACD itself because that is what the MACD shows us. It is only temporary, and as traders we also need to look at long-term practice because we do not want to trade in this practice.
Therefore, a simple but high winning strategy that I recommend for beginners by combining a MACD agreement with a long-term trend indicator similar to 100 EMA. In this way we can safely sell MACD while ensuring that we remain in the same long-term tradition.
HOW TO TRADE STRATEGY WORKS
1- The first step is to identify the long-term trend by looking at the 100 EMA. If the price is more than 100 EMA. Indicates that the long-term trend is over. And if the price is below 100 EMA, it indicates that the long-term trend is low. So, once you’ve identified the trend.
2- The next step is that we want to look at the cross over in the MACD which shows the same signal as the long-term trend. So, in this particular example, we see that the long-term trend is up, which means that we are only taking the signals when the MACD falls higher. And again, these would mean that you have to spend for these processes.
WHAT SHOULD BE YOUR EXIT PLAN?
You can set your stop loss at the bottom of the swing and set your profit or earn 1.5 times where you lost. And as you can see. This trade only made a profit.
So let’s look at another example. In this chart we see that prices are below 100 EMA, indicating that the long-term trend is declining next. We have crosses down on the MACD so this will be our short entry signal.
WHAT SHOULD BE YOUR STOP LOSS OF PLAN?
It is placed over a nearby hanger. Also set your profit margin for 1.5 times where you lost. And as you can see. The price meets our profit margin so this counts as a successful trade. So that was a simple MACD strategy for beginners that you can use now for advanced traders if you want to make more profit using MACD, you can’t just rely on crossover initial strategies because remember that crossover usually only works in the leading markets.