Elearnmarkets - Financial Market Learning
  • Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
  • Courses
  • Webinars
  • Go To Site
  • Login
Elearnmarkets
  • Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • English
    • Hindi
    • Bengali
No Result
View All Result
Webinars
Elearnmarkets - Learn Stock Market, trading, investing for Free
No Result
View All Result
Home Technical Analysis
macd

5 Trading Strategies using MACD Technical Indicator

Elearnmarkets by Elearnmarkets
April 12, 2022
in Technical Analysis, Charts, Patterns & Indicators
Reading Time: 8 mins read
6
21k
VIEWS
Share on FacebookShare on TwitterShare on WhatsApp

Moving Average Convergence Divergence(MACD) is regarded as one of the most important indicators in technical analysis as it can identify opportunities across financial markets. 

Did you know that this technical indicator not only helps us in identifying whether the trend is bullish or bearish but also helps us in our trading by giving us entry and exit levels of the stock?

So, in today’s blog, we’ll go through 5 trading strategies that use the indicator, as well as we will also discuss how to incorporate these methodologies into your trading system.

Table Of Contents
  1. What is Moving Average Convergence Divergence?
  2. Trading Strategies using MACD
    • 1. Crossovers
    • 2. MACD Histogram
    • 3. Zero Crosses
    • 4. MACD and Relative Vigor Index
    • 5. MACD and Money Flow Index
  3. Using MACD Scans in StockEdge
  4. Bottomline 

What is Moving Average Convergence Divergence?

One of the most often used technical analysis indicators is moving average convergence divergence. 

It’s a trend-following momentum indicator, which means it looks at the momentum of an asset to see whether it’s trending up or down. It may be used to generate trade signals and discover trading opportunities.

The Moving Average Convergence Divergence indicator is shown in a separate window beneath the chart. It has the appearance of a histogram with an auxiliary line. 

macd

The divergence of two moving averages is depicted in the histogram. The histogram bars increase longer as one travels away from the other; the bars get shorter as the moving averages get closer.

Rapid movements will show up as long bars in the MACD histogram, whereas flat will show up as short bars.

The default values for the indicator are 12,26,9. However, it’s worth noting that many traders confuse the indicator’s two lines with simple moving averages. 

Remember that the lines are exponential moving averages, which will react more strongly to recent price movement than a standard moving average (SMA).

Thus, the MACD lines are represented as 12-period EMA and 26-period EMA.

Having understood the basics of these technical trend indicators, let us discuss some strategies that you employ when trading with this indicator:

Trading Strategies using MACD

1. Crossovers

The MACD line and signal line can be utilised similarly as a stochastic oscillator, with the crossover between the two lines providing buy and sell signals.

 As with most crossover strategies, a buy signal comes when the shorter-term, more reactive line – the MACD line – crosses above the slower line – the signal line. Conversely, when the MACD line crosses below the signal line, it provides a bearish sell signal.

As the crossover strategy is lagging by nature, it is based on waiting for a movement to occur before opening a position.

In weaker market movements, the MACD’s biggest problem is that the price may have reached a reversal point by the time a signal is generated. This would be referred to as a ‘false signal.’ It’s worth mentioning that techniques that rely on price action for signal confirmation are frequently seen as more dependable.

2. MACD Histogram

The histogram, with the bars reflecting the difference between the MACD and signal lines, is likely the most valuable aspect of MACD. 

The histogram will grow in height when the market price moves aggressively in one direction, and it will diminish when the market is moving slowly.

macd

The two moving average lines are moving wider apart as the bars on the histogram travel further away from zero. 

After the first expansion period has passed, a hump shape will most likely appear – this is a sign that the moving averages are tightening again, which can be a precursor to a crossing.

3. Zero Crosses

The zero-cross approach is based on the zero line being crossed by any EMAs. A new uptrend may be forming if the MACD crosses the zero line from below, while a recent downtrend may be forming if the MACD crosses from above.

macd

Because this is the slowest of the three signals, you will observe fewer signals and fewer false reversals. When the MACD crosses above the zero line, buy – or close a short trade – and when the MACD crosses below the zero line, sell – or close a long position.

Because of the delayed nature of this strategy, it should be utilised with caution in quick, choppy markets since the indications will often arrive too late. This can, however, be quite valuable as a technique for delivering reversal indications for significant sweeping advances.

4. MACD and Relative Vigor Index

The Relative Vigor Index is an oscillator that compares the closing price to the price range of the stock.

The calculation is a little difficult. To put it another way, think of the RVI as a cousin of the Stochastic Oscillator.

It is possible to provide more context for overbought/oversold scenarios by including an oscillator. This provides context for the MACD stock indicator, confirming whether the trend’s momentum or strength is intact.

Combining these two tools has the basic goal of matching crossings.

In other words, if one of the indicators has a cross, we wait for the other indicator to cross in the same way. When this happens, we either buy or sell.

macd

Read more about Technical Indicators from ELM School

5. MACD and Money Flow Index

Another oscillator is the money flow index, which focuses on both price and volume.

Because the money flow index requires both price movement and volume spikes to create extreme readings, it will generate fewer buy and sell signals than other oscillators.

This approach will combine the MACD stock indicator’s crossing with the money flow index’s overbought/oversold signals (MFI). We wait for a bearish cross of the MACD lines when the MFI signals an overbought stock. If this occurs, we will be forced to go short.

In the same way, it works in the other direction. A long signal is generated by an oversold MFI reading and a bullish cross of the MACD lines. As a result, we remain until the signal line of the MACD breaks the trigger line in the opposite direction.

You can also watch our Webinar on Finding the Next Big Winner with the Help of Moving Average Convergence Divergence Indicator

Using MACD Scans in StockEdge

In StockEdge, multiple MACD scans help us filter the stocks for trading, as shown below.

After selecting any of the scans, we get a list of stocks that full fill that criteria-

macd

Join our course on Certification in Online Technical Analysis to learn about more trading strategies

Bottomline 

When initially starting as a trader, indicators and techniques can be confusing. They can, however, be useful tools to supplement our trading if we have the correct information and expertise. We hope you found this blog informative and use it to its maximum potential in the practical world. Also, show some love by sharing this blog with your family and friends and helping us in our mission of spreading financial literacy.

Happy Investing!

Tags: basicenglishmacdtechnical analysis
ShareTweetSend
Subscribe To Updates On Telegram Subscribe To Updates On Telegram Subscribe To Updates On Telegram
Previous Post

A 5-Star Relative Strength Index (RSI) Strategy by Star Trader Vishal Malkan

Next Post

VWAP Strategies for Profits in Stock Markets by Mr Brian Shannon

Elearnmarkets

Elearnmarkets

Elearnmarkets (ELM) is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. You can connect with us on Twitter @elearnmarkets.

Related Posts

Technical Analysis

Ultimate Guide to Certified Market Technician (CMT) Level-1

December 27, 2022
4.3k
Technical Analysis

5 Best Intraday Trading Strategies

November 3, 2022
33k
Technical Analysis

3 Trading Strategies using Average Directional Index (ADX)

January 19, 2023
9.2k
Technical Analysis

Technical Analysis in Stock Trading

January 18, 2023
4.9k

Comments 6

  1. Chinyere offor says:
    10 months ago

    I really love your article, it’s interesting

    Reply
    • Sakshi Agarwal says:
      10 months ago

      Hi,

      We really appreciated that you liked our blog!

      Thank you for Reading!

      Keep Reading!

      Reply
  2. ashutosh Kumar says:
    10 months ago

    Very good lessons, So Many thanks.

    Reply
    • Sakshi Agarwal says:
      10 months ago

      Hi,

      We really appreciated that you liked our blog!

      Thank you for Reading!

      Keep Reading!

      Reply
  3. Rupesh Suragani says:
    10 months ago

    Good

    Reply
    • Sakshi Agarwal says:
      10 months ago

      Hi,

      We really appreciated that you liked our blog!

      Thank you for Reading!

      Keep Reading!

      Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Follow Us

Facebook-f Twitter Instagram Linkedin-in Youtube Telegram

Download App

Register on Elearnmarkets

Continue your financial learning by creating your own account on Elearnmarkets.com

Register Free Account

Get Articles On Email

Enter your email address:

Categories

  • Basic Finance
  • Derivatives
  • Financial Planning
  • Fundamental Analysis
  • Technical Analysis
  • Marketshala
  • Miscellaneous

© 2022 Elearnmarkets . All Rights Reserved

  • Visit Elearnmarkets
  • Courses
  • Webinars
  • Financial Guides
  • Get Free Counselling

Get Elearnmarkets App

No Result
View All Result
  • Article Categories
    • Basic Finance
    • Derivatives
    • Financial Planning
    • Fundamental Analysis
    • Technical Analysis
    • Marketshala
    • Miscellaneous
  • Language
    • Hindi
    • Bengali
    • English
  • Courses
  • Webinars

© 2020 Elearnmarkets All Rights Reserved

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In