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The MACD Indicator For Beginners [Become An Expert Immediately]
Published: 2022-03-03
Status:
Available
|
Analyzed
Published: 2022-03-03
Status:
Available
|
Analyzed
Predictions from this Video
Incorrect: 0
Prediction
Topic
Status
The MACD line is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA.
"The math behind the macd line is pretty simple it's just the 12 ema minus the 26 ema"
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The MACD signal line is a 9-period EMA of the MACD line itself.
"The signal line is very simple it is nothing more than a 9 ema of the blue line or our macd line"
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The MACD histogram represents the difference between the MACD line and the signal line.
"the histogram on a macd is just showing you the distance between the macd line and the signal line"
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When both the MACD line and signal line are above the zero line, it indicates an uptrend.
"if the signal line and the macd line are both above our zero line on the macd then that market is considered to be in an uptrend"
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When both the MACD line and signal line are below the zero line, it indicates a downtrend.
"if the signal line and the macd line are below the zero line on the macd indicator then that can give you more confluence that a particular market is in a downtrend"
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A trading strategy involves waiting for price to reach a major structure level, then entering a short trade when the MACD line crosses below the signal line.
"something we might add to this is scrolling the chart left and only placing trades when we have price pushing up to a major level of structure then using that mat d line crossing below the signal line as an entry into that trade"
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MACD divergence occurs when price makes lower lows while the MACD indicator makes higher lows, suggesting a potential reversal.
"divergence would be if price is heading lower lower lower and the indicator you're looking at in this case it's going to be the macd instead of making a lower low like we did right here this low being lower than this low if this happens on price and then the indicator does something like this goes from a lower low to a higher low that is what we call divergence"
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MACD divergence occurring at a resistance level is a signal of a potential price reversal.
"macd divergence at a level of resistance now what do we say macd divergence does it signals reversals"
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A combination of MACD divergence, resistance levels, and a double top pattern indicates a high-likelihood trading opportunity.
"adding all these factors together along with the fact that we have a double top chart pattern here as well in my opinion equals what i would call a high likelihood trading opportunity"
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Identifying a trading opportunity should prioritize price action analysis, with indicators used for added confluence.
"i would see this trade right here as a good trading opportunity and the reason is because we always look at price first than the indicator second in order to identify more confluence in a trading opportunity"
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When price returns to a tested structure zone and is above the 200 EMA, it indicates an uptrend.
"we have price coming back to our zone of structure that was tested multiple times considering that we can now look at the indicators in order to provide more confluence one of our indicators being the 200 ema prices above the 200 ema giving us an indication that we are in an uptrend"
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For an uptrend, both the MACD line and the signal line must be above the zero line on the MACD indicator.
"if we look down on the macd what did we say we needed in order to identify an uptrend using the macd we need the signal line and the macd line to both be above zero"
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Waiting for the MACD line to cross below the signal line and then cross back above can add confluence to a trade.
"you could wait for the macd line to go below the signal line like what looks like is happening now and then for the macd line to cross back above the signal line and that cross back above would add more confluence to this trade"
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MACD divergence is identified when price makes higher highs, but the MACD indicator makes lower highs.
"we have macd divergence here because the macd is creating lower highs and prices creating higher highs this is what is known as divergence"
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Divergence occurring at a higher timeframe structure level increases the confluence for a potential selling reversal.
"when we have divergence coming into a higher time frame level of structure again adds confluence to that possible reversal for selling pressure"
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Divergence occurring at a major structure support level can signal a possible buying reversal.
"when we have divergence coming into a level of major structure support we can look to buy that as a possible reversal"
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A bullish trend continuation strategy requires price to be above the 200 EMA, and both the MACD and signal lines to cross below zero.
"for this strategy we want to see price trading above the 200 ema at the point the price is trading above the 200 ema we're going to look down at our macd indicator what we want to see from the mat d is that our signal line the orange line and our blue line which is the mac d line both cross below zero"
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For a buy signal in this strategy, the MACD histogram must turn green (MACD line crossing signal line upwards) while price is above the 200 EMA and the MACD/signal lines are below the zero line.
"we want to see a change in color from red to green for a by trade while all of this is still happening so this change in color which remember just signals the cross of the macd line and the signal line but this change in color must happen while price is still above the 200 period moving average and while the macd line and the signal line are actually below the zero line"
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A bearish trend continuation strategy requires price to be below the 200 EMA, and both the MACD and signal lines to be above zero.
"for this strategy we want to see price trading below our 200 period ema so with that being the case we know we're in a downtrend price has also created new lower lows compared to the previous low for extra confirmation is our signal and macd line above the zero on the indicator the answer is yes and for a bearish trade this is what we're looking for we're looking for these two lines to be above the zero line on the macd indicator"
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A bearish signal in this strategy occurs when the MACD histogram changes color (indicating a cross of the MACD and signal lines).
"we want to see a change in color on our histogram does that happen here well yes we have a cross"
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Testing of a specific trading strategy showed a win rate slightly above 50% with a 1.4:1 reward-to-risk ratio.
"my testing results here are about a little bit above a fifty percent chance to win alongside that fifty percent chance to win i also have about a one point four to one reward to risk ratio"
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Risking 2% or less per trade over time can lead to profitability, even with a sound strategy.
"if you were risking two percent or less on your trades over the course of a long period of time you could have been profitable on top of risk management"
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