Although the (MACD) Moving average convergence/divergence is normally used as a trending indicator,it can also be used as an oscillator
It helps us to analyzethe direction of the price movement, how strong the movement may last and the likeliness of the change in trend.
This facilitates us of possible entry in a trend when it starts and exit before it finishes.
How do we read the MACD indicator?
It consists of three readings which are together in a box underneath the price chart.
A.MACD line
B.Signal line
C.Histogram
The illustration chart below depicts how the indicator appears on a chart:
Number 1: Signal line
Number 2: MACD
Number 3: Histogram
The moving average lines
The MACD line is a moving average line that tracks the underlying asset’s price.
The signal line is a moving average of the MACD line and interacts with it to produce trading signals.
The red signal line is a moving average of the MACD line itself. It smoothes out the movement of the MACD line and interacts with it to produce trading signals.
The histogram
The difference between these two lines is displayed by the histogram.
The momentum of a price move is determined by the bars that appear either below or above a horizontal zero line.
This helps us to understand when a trend is gaining strength and the vice versa.
Market hunt Trading platform with the MACD indicator:
Selling signal:
When the MACD has crossed below the signal line, it is a sell signal. The signal is stronger if the histogram bars are also below the zero line.
If the MACD crosses down below the Signal line, but the histogram has not confirmed it by producing bars below the zero line, this is a sell signal, but not strong.
Buying Signal:
When the MACD crosses below the Signal line, it is a buy signal. If the histogram is above the zero line, then the signal is stronger.
If the MACD crosses above the Signal line, but the histogram does not confirm it by having its bars above the zero line, this gives a buy signal, but not as stronger one.
The chart below depicts the MACD providing a strong sell signal:
Number1: MACD has crossed down below the Signal line
Number 2: Histogram is below the zero line.
Number 3: MACD has crossed up above the Signal line
Number 4: Histogram is above the zero line
How to change the MACD settings in Market hunt
The standard settings of the MACD indicator’s are
Long cycle-26
Short cycle- 13
Signal period -9
Moving Average type: Exponential moving average
Color: Red
We can alter these settings based on how quickly the indicator reacts to price action and how often it gives us trading signals.
The illustration chart below depicts how the indicator appears under the standard settings:
Number 1: MACD line
Number 2: Signal line
Increasing the MACD settings
The increase in the settings will slow down the signals.
This will prevent false signals.
As a result, the genuine moves may be missed.
The illustration chart below depicts how the MACD looks when the settings have been increased
Long cycle-50
Short cycle- 21
Signal period -12
Moving Average type: Exponential moving average
Color: Red
Number 1: MACD line
Number 2: Signal line
Very less trading signals are noted.
Decreasing the MACD settings
Opposite effects are noted.
It gives more signals as the indicator becomes sensitive. This results in more false signals.
The illustration chart below depicts how the MACD looks when the settings have been decreased
Long cycle-13
Short cycle- 6
Signal period -5
Moving Average type: Exponential moving average
Color: Red
Number 1: MACD line
Number 2: Signal line
If the indicator’s settings have to be changed, then it is necessary to monitor if our changes are improving our trading results, logging and comparing any profit or losses we make from the same trading strategy under different indicator settings.
Nut Shell:
An overview of the lesson discussed so far….
Although the (MACD) Moving average convergence/divergence is normally used as a trending indicator, it can also be used as an oscillator.
It helps us to analyzethe direction of the price movement, how strong the movement may last and the likeliness of the change in trend.
This facilitates us of possible entry in a trendwhen it starts and exit before it finishes. Enables buy or sell decision of an asset.
The MACD line is a moving average line that tracks the underlying asset’s price.
The signal line is a moving average of the MACD line and interacts with it to produce trading signals.
The histogram displays the difference between the MACD and signal lines and indicates the momentum of a price move and when it may be about to end.
The increase in the settings will slow down the signals. This will prevent false signals.
The decrease in the settings will increase the signals. This will also result in more false signals.
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