Moving Average Convergence Divergence (macd) Strategies – MACD stands for “Moving Average Convergence Divergence.” It is widely used in technical analysis and, like all indicators, reconstructs the prices we find on the chart.
MACD is a qualitative indicator that helps us determine the direction, strength and duration of a trend. For this reason, it can help when we want to filter out market noise and, consequently, reduce the risk of opening positions in the wrong direction.
Moving Average Convergence Divergence (macd) Strategies
In systematic trading, this indicator can be easily coded into the trading system and used to generate entry and exit signals. Regarding time frames to use in the system, note that although MACD was originally intended for use on daily bars, it can also be used on intraday bars.
Macd Indicator Explained
In this article, we will explain what the MACD indicator is and how to calculate it, what kind of trading signals it can provide, how to create and improve automated strategies based on it.
Basically, MACD is a line drawn on a price chart that lets you know which particular instrument is moving in which direction and how strongly.
To get usable entry and exit signals for your strategies, you usually need to calculate another line called the “signal line”.
The inputs needed to calculate the MACD and signal lines are in the instrument’s market data. Generally, they correspond to the closing values of the bars you are considering
How To Use The Macd Indicator When Trading
To calculate the MACD, you simply need to find the difference between two exponential moving averages, a 26-period slow and a 12-period fast.
For example, you can calculate the MACD by finding the difference between the exponential moving average of the last 26 bar closes and the exponential moving average of the last 12 bar closes.
For the signal line, that is, the line needed to generate a trading signal, you simply need to calculate the 9-period exponential moving average of the MACD (thus using the last 9 bar values of the MACD).
Interestingly, in the exponential moving average, the weights of the bars used for calculation are not equal to each other. In fact, the new bar closures weigh more than the old bars.
Technical Trading Indicators You Must Know
These details may seem irrelevant. However, it is very useful to get a clear picture of how MACD works. Thanks to the greater weight given to recent bars, the MACD can react more quickly to market movements, helping to determine the speed and direction of the current trend.
At the top are the price bars, while at the bottom of the chart we see two lines and a histogram. The light green line represents the MACD while the dark green line plots the signal line.
In contrast, the bars in the histogram below represent the divergence between the MACD and the signal line, and let us easily assess when convergence or divergence occurs between these two lines.
As you can see, the histogram bars are longer when the two lines are farther apart and shorter when they are closer, until they cancel out in cases of crossing or convergence.
Macd The Short Term Trend Sniper. Moving Average Convergence Divergence…
One of the most popular methods for using MACD in trading strategies is to analyze its convergence with signal lines.
When the MACD line crosses above the signal line we get a long entry signal. On the other hand, when the MACD line crosses below the signal line, we get a short entry signal.
In the image below you can see two examples of crosses between MACD and signal lines.
In the first example from the left, the MACD line (light green) crosses below the signal line (dark green), so we have a short entry signal. In the second example, the MACD line crosses above the signal line, creating a long entry signal.
What The Macd Indicator Is And How It Works
If we want to use the MACD line by itself without the signal line, we can get the trading signal by evaluating its position relative to the zero line (this is the horizontal line from which the bars of the histogram move).
As shown in the figure below, when the MACD line crosses the zero line downwards we get a short entry signal as it means the market is going down.
Instead, when the MACD line crosses the zero line and rises, we get a long entry signal because the market is bullish.
In this video, you can get a detailed explanation of how the MACD indicator works, complete with charts, formulas and calculation examples.
Macd Indicator: An Overview
The MACD indicator can provide important information about current market trends that we can use as entry and exit signals for our strategies.
In fact, we can use the pre-built functions provided in our trading platform library to calculate the MACD. Usually, this function is simply called “MACD”.
The required inputs for this function are: bar off, the number of periods to calculate the fast exponential moving average (by default this value is 12), and the number of periods to calculate the slow exponential moving average (this value is 26 by default).
To calculate the signal line, i.e. the line that allows us to get trading signals, we need to calculate the exponential moving average of the MACD of 9 periods.
Macd Ultimate Guide + 5 Profitable Trading Strategies
An example of a strategy based on the MACD and its cross signal line to determine market entry might include opening a long position when the MACD crosses above the signal line and when the MACD crosses below the signal line.
In the following video, we will show you how to develop and optimize this simple trading system based on the MACD indicator.
We go into detail about the inputs, functions and terms to include in the system script and test such a system on a portfolio of 15 instruments using a time window of 1440 minutes.
As explained in the video above, using the signal generated by the crossing between the MACD and its 9-period exponential moving average may not be sufficient for optimal performance.
What Is Moving Average Convergence Divergence (macd)
For this reason, in the video, we show several adjustments that can produce a significant improvement in strategy performance, reducing drawdowns, increasing average trades, and improving the shape of the equity curve.
Among these adjustments, we find position management mechanisms such as stop loss and take profit. To set these levels, you need to select values that correspond to the average financial range of the instrument you are trading.
Another way to improve the performance of trading systems based on MACD is to use this indicator as a filter for market entries.
For example, one can filter short entries so that they only occur when the fast exponential moving average is below the slow exponential moving average. Thus, the system will open short trades only when MACD is negative and long trades only when MACD is positive.
What Is Macd? Moving Average Convergence/divergence
The MACD indicator can also be used to filter position exits. In this case, you can exploit the convergence or divergence between the MACD and the signal line (as explained earlier, it is represented by the histogram).
After crossing with each other, the MACD line and signal line diverge and then converge again. When these lines converge again, an order can be sent to close the position, since this behavior can indicate the opposite direction of the market trend.
Another way to improve the performance of a MACD strategy is to optimize the inputs used to calculate the exponential moving average, eg, 9, 12, and 26, looking for values that can produce better results than the defaults.
The adjustments shown in the video and mentioned in this article can prove extremely effective in increasing average trades, reducing drawdowns, and dramatically improving equity line performance.
Macd Moving Average Convergence Divergence
After making some adjustments listed above we conclude with a comparison of the equity line and system of the basic system: We would like to clarify that International does not have an official line account at this time. We have not established any official presence on the Line messaging platform. Therefore, any account claiming to represent international on line should be considered unauthorized and fake. CFD is a complex tool. Retail client accounts lose 72% of money when trading CFDs with this investment provider. You can lose your money quickly because of leverage. Please make sure you understand how this product works and whether you risk losing money. CFD is a complex tool. Retail client accounts lose 72% of money when trading CFDs with this investment provider. You can lose your money quickly because of leverage. Please make sure you understand how this product works and whether you risk losing money.
The Moving Average Convergence Divergence (MACD) indicator can identify opportunities across financial markets. Learning how to implement the tool is crucial to a trader’s success, so we looked at three common MACD strategies.
Moving Average Convergence Divergence (MACD) is one of the most widely used technical analysis indicators. It is a trend-following momentum indicator, money
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