The MACD indicator (Moving Average Convergence Divergence) can be said calmly that it is the most important indicator that exists and the one that today is most used all over the world, whether to trade in the stock market or in Forex. This indicator was created by Gerald Apple and its main function is to follow the trend of value in the form of an oscillator. Another indicator of the same prestige is the RSI. I advise you that once finished this tutorial, you learn to use the RSI using this tutorial.
Once the presentation is done, we will see an image of the indicator to use.
How is the MACD calculated?
As you can see, the indicator consists of two lines and some bars.
The blue line is called MACD and consists of two moving averages that are usually configured exponentially in 12 and 26 periods. When doing the subtraction between both means, we have as a result the MACD line.
The orange line is called signal (signal) and is the calculation of another exponential moving average of 9 periods. This line serves as a “signal” to position itself in purchase or sale when it crosses the MACD or when it crosses the zero line.
The purple bars are called MACDh because they are the difference between the Signal line and the MACD line represented in the form of histogram bars a.
How can I use the MACD?
Well, the theoretical part we already know but … how can I use this indicator in day to day. There are two ways to use the MACD:
When the MACD line (blue) intersects with the Signal line (orange)
This is the strategy that I like the most and the simplest. It consists simply of waiting for a crossing between the MACD and Signal. When the MACD crosses above Signal we position ourselves bullish and when it crosses below, we position ourselves bearish (or we get out of value). So you can see that I do not use fake or “book” images, I’m going to take the current EUR / USD quote and apply the MACD indicator.
The arrows painted in green would indicate when we should enter the value while the red arrows tell us when we should leave. The red boxes are the time we have been in the market. The yellow lines are the gains we would have had. As you can see, the value is quite reliable … why? Well mainly because the EURUSD is in a clearly bullish trend and as the MACD is a trend indicator, it works perfectly. This method is ideal for lovers of swing trading as it allows trading both up and down.
When both lines cross the zero line
The other way to use this indicator is to wait for the moment when both means cross over zero to position bullish or below zero to position us bearish. Let’s see the same chart applying said system.
MACD crossing by zero As you can see, we would have had two failed entries but one very positive and we would remain within the value. This style of trading to me personally I like less since it generates very few inputs and outputs and when the value stays sideways it usually gives many false entries.
There is a third method that consists in analyzing divergences between the price and the MACD but to explain this method I prefer to do a tutorial separately as it deserves.
How to configure the MACD?
Setting this indicator is extremely easy. We just need to decide the speed we want to apply to the three moving averages. The lower the value, the means will be faster. A fast moving average will give many inputs and outputs of which many will be false. Conversely, putting very large moving averages will give less input signals and can also cause us to incorporate late to value.
The recommended system is always 26 (medium long) 12 (medium short) and 9 (signal). If what you like is swing trading and doing more operations, I recommend you use the fast MACD, which would be setting 13, 5, 10.
Today many indicators are composed of this indicator, for example I recommend you take a look at my indicator Estrangeal Wizard.
How to add and configure MACD in Tradingview?
If you use the Tradingview platform, I recommend that you insert this indicator in all your graphs, for that you only have to click on Indicators and look for MACD.
If you want to set the speed of the socks, you will have to click on the little wheel
How to add and configure MACD in PROREALTIME?
It’s very simple, we just have to hit the add indicator button and look for MACD. Once we find it, we give it to add:
Once inserted, we can configure your configuration by clicking on the spanner and changing the parameters of the moving averages:
And with this I end the MACD indicator. I hope it has helped you and you can get the most out of this tool.