At the same time, an oversold condition happens when the MACD line is significantly lower than the signal line. Traders can make use of these signals to enter or exit positions based on their preferred trading strategy. The most common way to trade using the MACD indicator is to look for divergence. https://www.bigshotrading.info/blog/trading-courses-start-learning-how-to-trade-successfully/ A MACD divergence can be either bullish or bearish and occurs when the momentum of the indicator contradicts the movement in price. This divergence can point to the potential for a reversal in trend. Examples of both bullish and bearish divergences can be seen in the chart pictured below.
It differs from the regular weighted moving average (WMA) in that whereas the weight in the WMA increases on a regular basis, in the EMA it does so exponentially. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money. In addition to bearish and bullish divergences, the MACD might confirm price movement as well. Nevertheless, the MACD technical indicator made a clear lower low from Low #1 to Low #2.
The BlackBull Markets site is intuitive and easy to use, making it an ideal choice for beginners. The zone above the zero line is called positive, and below it is negative. Therefore, a negative MACD forms when the histogram is below the zero line. In order to filter by MACD indicators, select the required screener and click on the rightmost button with three dots. For the US dollar, the effectiveness of the MACD trading strategy is medium.
The best MACD settings for a 15-minute chart are parameters 24, 52, and 18. However, this setting is only a few percent better in our case study than the default setting 12,26,9. This setting is the best for small time frames.
Increasing the number of periods for the signal line will reduce the number of crossover signals, helping avoid false signals. However, trade signals will occur later than they would with a shorter signal line EMA. Most charts use a 9-period exponential moving average (EMA) by default.
In the blue circle, we see the fast red curve crossing the slower line of purple color upwards. Immediately after this, the MACD histogram moves to the positive area. The presence of both signals of the strategy allows us to open How to Use the MACD Indicator a long position at the close of the candle (blue line). You can see another bullish reversal scenario in the S&P 500 weekly charts. It is preceded by the crossing of the moving average lines in the negative zone (blue circle).
In contrast, when a stock price is rising but the MACD is falling, then the current uptrend could be coming to an end, with a bearish retrace in the offing. In this guide, we take a look at how to use this indicator and create a MACD trading strategy. Divergences might signal a trader to get out of a long or short position before profits erode. Notice in this example how closely the tops and bottoms of the MACD histogram are to the tops of the Nasdaq 100 e-mini future price action. The MACD histogram is increasing in height (either in the positive or negative direction).