MACD is a good indicator, specially for the new traders who have not built their discipline yet. MACD is a good indicators specially for those who suffer from entering and exiting too early. MACD forms some special and strong trade setups.
They are very easy to locate on the charts. I use the MACD histogram. The MACD traditional indicator has two parts. The first part consists of two lines. One of the lines is the MACD indicator itself and the other line is the moving average of this indicator. Using the histogram makes the indicator simpler, and it still reflects the signals we need to trade.
So I remove the lines and I only keep the histogram. The below picture shows the traditional MACD:. The MACD default settings is 12, 26, 9. However, to remove the noise you can set it to 24, 52, 9 to make it even slower. The below screenshots are all with this slower settings. In spite of this, none of trade setups will be missed, and our entry will not be delayed at all. This is an amazing feature that MACD has. MACD Divergence forms when the price has been going up for a long time and has formed an uptrend.
When the price still keeps on going up and forms higher highs but MACD changes its direction, goes down and forms lower highs, a pattern forms on the chart which is called MACD Divergence.
Of course there are some other indicators like RSI that also form divergence and convergence patterns, but MACD divergence and convergence are sharper and stronger and more famous among the traders. When they form on the charts, it is a signal that the price can reverse very soon, and, in most cases it really does.
But there are some cases that the price follows the same direction even after a divergence or convergence. As you see on the below chart, the price has been going up and it has formed a higher high, but at the same time MACD histogram starts going down and forms a lower high while the price goes up to form the higher high.
This is called divergence:. The red arrow shows this candlestick which has formed a very strong Bearish Engulfing Pattern:. Although the candlestick pattern was so strong by itself, the MACD Divergence added a big confirmation to it. You can have your stop loss always there and move it to breakeven when the price moves accordingly, so that if the price turns around suddenly you will not get out with loss:.
Please note where the entry and stop loss levels are:. For example, if you use the candlestick patterns to trade, but you want to have more confirmation to filter out more false signals and take less risk, you can use MACD. The Bearish Engulfing Pattern formed while we already had a divergence there. However, it could form without a divergence.
Still you can use MACD to confirm the candlestick patterns you locate while there is no divergence or convergence. MACD keeps you from making mistakes and taking the weak patterns and signals. As you see when the engulfing candlestick closed and the next candlestick opened, the MACD related bar and also the previous bar were getting smaller which means the market was getting bearish and the price was ready to go down, so that it was OK to take the bearish signal:.
The below chart shows you too many weak candlestick patterns that you might take if you did not have the MACD on the chart. However, it is not a strong signal and it had to be skipped as a reversal pattern. Novice traders usually jump in as soon as such a pattern forms on the charts. But experienced traders understand that such setups are weak and unreliable.
However, as you see, the MACD bar 8 and several previous bars have been going up strongly which means the market was still bullish and it was wrong to go short. Candlestick 9 has formed a continuation signal above Bollinger Middle Band.
At the same time, MACD bar 10 and the bars before and after, were going up. It means the market was bullish and it was OK to go long. Candlesticks 11 formed a strong Bollinger Upper Band breakout that looked like a good reversal signal, but MACD bar 12 and the bars after that, were going up which means the market was strongly bullish and it was wrong to go short. They jump in as soon as they see a pattern that can be false or too weak.
This is how you can use MACD. See how MACD confirms some trade setups and rejected the others. Then answer the below questions and decide:. I have not tried changing the default setting, but I will certainly try yours. MACD is my favourite oscillator, ie I am more consistent with it on my chart than any other. I love to address individual and pay respect for the resource we are tapping from you. Dr Chris as I address you, thank you for the forum to learn from you guys.
Your words are just clear to understand all this technique. I have really learnt a lot. Even pyscological I even watched a film about Lord Budda.
As in my life is different. This course was more of awakening to me. I will try your concepts out. MACD can help us to decide right time to enter and find out weak and strong trade set ups….. Thank you Chris for the excellent article. I used to lose my money on my mobile phone I installed. I Metatrader4 for Android. Usually I have a lot of red numbers loosing positions. I tried your thoughts and Ideas in trading on Friday Oct for the first time. I got two benifits from these trading 1.
It is the first time to see 10 or 15 open positions all of them with blue numbers profiting positions. Thank you for your comment, and glad to hear you are getting good results now. Regarding your question, you are right. If you trade the candlestick patterns, when the pattern is formed MACD still has not crossed the zero level, because candlestick patterns are early and real time signals, whereas MACD is too lagging.
Next week I may give feedback result about this strategy since I am beginner in trading and technical analysis. Another note from my side: If you came to this conclusion that you need a better and easier system, then refer to this article: No, it is easy for me.
I read the article you refer to me , it is very nice and important. Each day I will select some articles and videos to read and see. There is a lot of knowledge at your site. HI Chris… can I know what the lowest volume amount in real account? In demo account however, they support 0. I feel the articles in LuckScout. I am into stock trading. I see that the articles about candlestick signals, bollinger bands and MACD are primarily written for markets.
I believe these articles hold good for stock markets as well and I wanted to confirm with you the same. Say for example, this article Slower settings of MACD indicator , does it works good for stock market as well. I am not experienced in market and I wanted to confirm with you. Candlesticks, bollinger bands and MACD is all about numbers ultimately depends on open, close, high and low prices. Hence, I believe it has to work for stock markets as well. The strategies we follow here can be applied to any markets, including stock market.
Specially the candlesticks patterns is a great tool for stock trading. Slow MACD can be applied to stock market too. Just add it to the stocks you trade and check the back data. In the text you refer to using settings of 24,52,9 but all the chart examples seem to use 24,52, I presume the chart settings are the ones to use, is this correct?
I beg to differ Chris, on my platform Tradestation it makes a huge difference to the outline of the histogram. How can I send you a screenshot comparing the 2 settings? On MT4 the last number is related to a simple moving average that we usually make it invisible because we only want to see the histogram on the chart.
My candlesticks look exactly the same as yours. To try to illustrate what I am talking about, I have attached 2 screenshots. The second screenshot shows at the top my chart from the 1st image, and then below it the same chart but with the addition of the usual MACD with both lines and the histogram. The histogram is of course completely different to the first image. All I am trying to do is establish exactly what is is you are using as what you say in your text and what is shown in your charts are not the same thing.
Wait for the divergence, wait for the histogram to lose momentum on the timeframe that created the divergence and enter.More...