MACD Indicator Strategy: The 2 BEST and Most POWERFUL Techniques Explained

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Today we will learn how to use the MACD indicator.

MACD Stands for Moving Average Convergence Divergence.

This is a Trend Following Indicator

That is made up of 2 lines, the MACD Line and the Signal Line, these are formed the same way that moving averages are formed
The lines of the MACD are created using a very precise calculation that is not important to know.

There are two primary strategies used while trading the MACD indicator

The Crossover Method And the Divergence Method Lets look deeper

The MACD Line Uses Recent Price Movement to plot a Line.
Then a second line, known as the “signal” line is plotted alongside the MACD So there are 2 lines, the MACD line and the signal line

Here the MACD Line is represented as the YELLOW line, the Signal Line is represented in teal In addition to the two lines, a standard MACD also has a Histogram. This is represented most typically as objects that look similar to the teeth of a comb.

The green histogram is know as the positive histogram, and the Red histogram which is known as the negative histogram.

Notice that when the MACD line crosses the signal line from top to bottom the histogram goes from green to red.

When the MACD line crosses the signal line from bottom to top the histogram goes from red to green. Additionally when the two lines widen the distance between them the histogram increases in size.

The most common method of trading the MACD is called the crossover method, this is just what it sounds like. When the yellow MACD line crosses the signal line from below to above, this is an up cross which is bullish. When the Yellow MACD line crosses the signal line from above to below this is known as a down cross, and is bearish. Here is one last up cross.

The crossover method consists of 3 steps.

First there is a clear trend that is defines, next there is a pullback in the price to a recent support area, then lastly there is a MACD cross up with a histogram moving from red to green.

Here we have a chart of the dow jones industrial average.

So again those steps are, find the trend, look for support, then find the MACD cross up.

Here the trend is not easily identifiable, so in instances like this we need to move to a larger time frame to identify the trend.

Now that we’ve moved to a higher timeframe it is much easier to see the uptrend.

So now that we have identified our up trend we next need to identify a support level.

The price has recently touched this area here, again here, here again, and yet another time. This makes this a strong support area.
Next we find our MACD cross up.

The result is the following move to the upside.

Lets look at another example, here is a chart of the QQQ
We need to identify our trend, this is done easily on this chart
Next we need an area of support.

This area is interesting because previously it served as resistance, as in the price approached it from the downside and was unable to break through as seen here and then again here.

Areas of resistance often turn to support as seen here and then once again here, we can see that the price is unable to break this area down

Next we look for a MACD cross up with a positive histogram, that is found here

The result is a profitable move up

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Now lets take a look at the divergence method for trading the MACD indicator

With he divergence method we want to first see the price put in a higher high than a previous high

Next we want to see the MACD line unable to place a higher high than its previous high (disagreeing with the price pattern)

Lastly we want to see a MACD cross down with a negative histogram

Lets look at this example

And We have our candles, our MACD indicators

First we want to see a higher high in the price

These highs are labeled here and we can see that the most recent high is higher than the previous

Now we can see that the MACD that correclated to the price did not place in a higher high but rather placed in a lower high, which disagrees with the price action above

Next we have a MACD cross down as seen here
The result is a move down.

That is a little more complicated than the crossover method so lets look at this one more time.

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Видео MACD Indicator Strategy: The 2 BEST and Most POWERFUL Techniques Explained канала Prophet Market