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The MACD is an indicator that allows for a huge versatility in trading. We can use the MACD for:
1. Divergence;
2. Intraday trading;
3. Crossover trading;
4. Scalping;
5. Breakouts;
6. Effective combo with Admiral Keltner (MT4SE);
7. MACD patterns.
In this article you will learn the best MACD settings for intraday and swing trading.
This is a default setting. The MACD is a lagging indicator, also being one of the best trend-following indicators that has withstood the test of
time. You don't need to download the MACD indicator separately as it is already built in our MetaTrader 4 platform.
Source: USD/CAD H4 Chart, July 20 2017, 17:05 Platform Time
Another version of the MACD is the so-called 2-line MACD, which can also be combined with great trading strategies. The difference is that
the default MT4 MACD indicator lacks the fast signal line (instead of showing the fast signal line, it gives you a histogram of it). For trading,
it's completely irrelevant as long as you use it with other tools that work in conjunction with the MACD itself. When the red and blue MAs
cross on the 2-line MACD, it is equivalent to the red MA line crossing the green histogram on the default MT4 MACD. There is no lag time
with respect to crosses between both indicators, they are timed identically.
MACD Divergence
Understanding MACD convergence divergence is very important. When the price is making a lower low, but the MACD is making a higher
low we call it bullish divergence. If the MACD is making lower high, but the price is making a higher high we call it bearish divergence.
Source: Nenad Kerkez T
Divergence will almost always occur right after a sharp price movement higher or lower. Divergence is just a cue that the price might
reverse, and it's usually confirmed by a trend line break. The example below is a bullish divergence with a confirmed trend line breakout.
Source: EUR/USD H1 Chart, June 6-28, Admiral Markets Platform
This is an example of a bearish divergence with a trend line breakout.
Source: EUR/USD H1 Chart, May 24-Jun 15, Admiral Markets Platform
Long Trades:
Indicators:
1. EMA 34 (Blue)
2. EMA 55 (EMA)
3. MACD (34,89,34)
4. Stochastic (8,1,3 and 13,1,3), overlaid
5. Admiral Pivot set on H1 (requires MT4SE)
Time frame: 5m
Pairs: EUR/USD (focus), GBP/USD, GBP/JPY, USD/JPY, AUD/USD, EUR/JPY, USD/CHF
Long entries:
Stops go below Admiral Pivot support (for longs) or above Admiral Pivots resistance (for shorts).
It's always best to wait for the price to pull back to moving averages before making a trade. Have in mind that Admiral Pivot will change
each hour when set to H1. That is an obvious advantage of this indicator compared to other Pivot Points. H1 Pivot is best used for M5
scalping systems.
MACD Breakouts
The MACD breakout is used to confirm Admiral Pivot breakouts in the trend direction. For this breakout system, the MACD is used as a
filter and exit confirmation.
Indicators:
Take breakout trades only in the trend direction. The trend is identified by 2 EMAs.
The trend is up if the 50 exponential moving average (50 EMA) is higher than the 200 exponential moving average (200 EMA).
The trend is down if the 50 exponential moving average (50 EMA) is lower than the 200 exponential moving average (200 EMA).
Long trades:
The trend is up (50EMA >200EMA), the MACD histogram is above 0 line, and the candle closes above the Pivot Point.
Short trades:
The trend is down (50EMA <200EMA), the MACD histogram is below 0 line, and the candle closes below the Pivot Point.
For short trades, exit when the MACD goes above the 0 or with a predetermined profit target (next Pivot point support).
You can move the stop-loss in profit once the price makes 12 pips or more.
Stop-loss:
Stop-loss is placed above/below the entry candle (aggressive stop loss) or above/below support or resistance (conservative stop loss).
Source: AUD/JPY H1 Chart, July 26, Admiral Markets Platform
Source: GBP/USD H1 Chart, July 26, Admiral Markets Platform
However, there are two versions of the Keltner Channels that are commonly used. Admiral Keltner is possibly the best version of the
indicator in the open market as the bands are derived from the Average True Range. For this strategy, the Admiral Keltner indicator,
available with MT4SE, is a must.
Consider only taking a Bollinger Bands with Admiral Keltner breakout strategy trade when both the upper and lower Bollinger Bands go
inside the Keltner Channel with the MACD confirmation.
The yellow highlight shows examples of Bollinger Bands (green lines) going inside the Keltner Channel (red lines). At those zones, the
squeeze has started. We still need to wait for the MACD confirmation.
Source: GBP/JPY M30 Chart, AM MT4 Platform, March 10, 18:30
However, in order to better validate a potential squeeze breakout entry, we need to add the MACD indicator. After plotting Bollinger Bands
and MACD on our charts, both with default settings, we must wait for a contraction on the bands and MACD confirmation.
When Bollinger Bands (both green lines) start to come out of the Keltner Channel (red lines), the squeeze has been released, and a move
is about to take place. Wait for a candle that breaks above or below the bands as a buy or sell trade trigger confirmed by the MACD.
Bollinger Bands and Keltner Channels tell you when the market is transitioning from low volatility to higher volatility. Using these two
indicators together is stronger than using a single indicator, whereas both indicators should be used together. In this trading method, the
MACD is used as a momentum indicator, filtering false breakouts. The MACD is a lagging indicator that lags behind the price and can give
traders a later signal, but on the other hand, the MACD signal is accurate in normal market conditions as it filters potential fakeouts.
Trade Trigger
Source: EUR/USD H4 Chart, AM MT4 Platform, Jun 5-July 19
Buy:
1. When a squeeze is formed, wait for the upper Bollinger Band to cross upward through the upper Keltner Channel, and wait for the
price to break the upper band for entry long;
2. The MACD must agree with the direction taken by the price as well as have a previous cross that also agrees with our direction.
Sell:
1. When a squeeze is formed, wait for the lower Bollinger Band to cross through the downward lower Keltner Channel, and wait for the
price to break the lower band for entry short;
2. The MACD must agree with the direction taken by the price as well as have a previous cross that also agrees with our direction.
Another example is shown below. After both the squeeze and the release have taken place, we just needed to wait for the candle to break
above/below the Bollinger Band with the MACD confirming the entry, and take the trade.
Source: AUD/USD H4 Chart, AM MT4 Platform, April 10-May 24
Recommended time frames for the strategy are M30-D1 charts. The strategy can be applied to any instrument. Intraday breakout trading is
mostly done on M30 and H1 charts. I advise using the Admiral Pivot point for placing stop-loss and targets.
Stop-loss for buy trades is placed 5-10 pips below the Bollinger Band middle line or below the closest Admiral Pivot support, while stop-loss
for short trades is placed 5-10 pips above the Bollinger Band middle line or above the closest Admiral Pivot support.
Target levels are calculated with the Admiral Pivot indicator. For M30-H1 chart, we use daily pivots, for H4 and D1 charts, Weekly pivots.
Both settings can be changed easily in the indicator itself.
Source: GBP/AUD H1 Chart, AM MT4 Platform, July 13-July 25
MACD Patterns
When we apply 5,13,1 instead of standard 12,26,9 settings, we can have a visual representation of the MACD patterns. These patterns
could be applied to various trading strategies and systems as an additional filter for taking trade entries. In our opinion, the best MACD
setting for a MACD pattern is, indeed, 5,13,1.
This is a Bullish SHS (Inverted Head and Shoulders pattern) that marks a reversal and a possible turn to uptrend. Possible entry is made
after the pattern has been completed, at the open of next bar.
A Bullish continuation pattern marks an upside trend continuation. First, the MACD makes a downside turn from point A, marking a
retracement. Subsequently, when point A is broken by the MACD histogram, it is a signal for a long entry.
MACD Bearish Continuation
A Bearish continuation pattern marks an upside trend continuation. First, the MACD makes an upside turn from point A marking a
retracement. Subsequently, when point A is broken by the MACD histogram, it is a signal for a short entry.
MACD Bullish 0 Line Rejection
When the MACD comes down towards the Zero line and turns back up just above the Zero line, it is normally a trend continuation move.
Points A and B mark the uptrend continuation.
MACD Bearish 0 Line Rejection
When the MACD comes up towards the Zero line and turns back down just below the Zero line, it is normally a trend continuation move.
Points A and B mark the downtrend continuation.
Please mind that the best time frame for the MACD patterns is H4.
By using MACD the right way, you should empower your trading knowledge and bring your trading to the next level!
Source: https://admiralmarkets.com/education/articles/forex-indicators/macd-indicator-in-depth?
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