Unleashing the MACD- Guide to Day Trading Success
Are you tired of counting on gut passions when trading? The Moving Average Convergence and Divergence (MACD) is an important technical indicator that can enhance your day trading effectiveness.
Here, we will discuss the optimal settings to be applied effectively to your day trading strategy.
In Technical analysis, traders use various tools to enhance their trading journey. Technical indicators are one of them. While opening a trade, a trader should know about the current trend and proper entry/ exit points. In technical analysis, there are two types of indicators:
- Leading Indicator: These indicators lead the prices and generate signals before the initiating of a new trend.
- Lagging Indicator: These indicators follow the price and generally lag the price action.
The Moving Average Convergence Divergence (MACD) is a combination of both of the indicators.
Isn’t it great news!!
Yes, the MACD indicator is a combination of moving averages (lagging indicator) and oscillator (leading indicator). This unbounded oscillator is suited for intraday, swing or positional strategies. However, a trader must know the optimal settings for different time-frames and trade goals.
Here, we will discuss the “Day Trading Strategy”. It should be noted that the indicator can be used in any market whether it is a Stock market, Commodity, or Currency market. This setup works well in the various market segments.
MACD is made up of three components, the MACD line, the signal line, and the histogram.
Source: Trading View
Default MACD Settings available in Trading view:
- Fast EMA 12 period
- Slow EMA 26 period
- Signal Line EMA 9 period
How to use MACD:
To Identify Trend Signals: When the MACD line crosses above the centre line or zero line it is a bullish sign. And, when the MACD line crosses below the centre line or zero line it is a bearish sign.
To spot Convergences/ Divergences: When the MACD is declining but the price is rising is known as negative divergence. And, when the MACD is rising but the price is falling can be identified as a positive divergence.
So, lets now discuss the optimal settings for the “ Day Trading”
Optimal MACD Settings
Standard MACD settings frequently fall suddenly for day trading. We recommend these customized settings.
- Fast EMA 8 period
- Slow EMA 21 period
- Signal Line EMA 5 period
These settings make the MACD more responsive to request changes.
Expert Tips for Using the MACD
- Trend Direction: A positive MACD line indicates an uptrend, while a negative line indicates a downtrend.
- Trading Signals: Buy when the MACD line crosses above the signal line, and vend when it crosses below.
- Divergence Analysis: Identify divergences between price movement and the MACD to spot implicit reversals.
Source: Trading view
Conclusion
The MACD is essential for detecting the beginning of new trends and signals, and or changes in the current trend. By espousing the recommended settings and strategies, you will enhance your day trading chops. Start using the MACD moment and elevate your trading game!