MACD for Traders: The Tool You Should Master

What is MACD Really

MACD (Moving Average Convergence Divergence) is an analytical tool designed to capture (Momentum) and (Trend) of price movements. Invented by Gerald Appel in 1970, it is based on a simple concept: subtracting the (12-day) short-term EMA from the (26-day) long-term EMA to measure the strength of the trend.

The structure of MACD consists of three parts:

1. Main MACD Line = EMA(12) - EMA(26)

• If MACD > 0 = Uptrend
• If MACD < 0 = Downtrend
• The farther from zero, the stronger the trend

2. Signal Line = EMA(9) of the MACD value

• Used to confirm trend changes
• Bullish when MACD > Signal Line
• Bearish when MACD < Signal Line

3. Histogram = MACD - Signal Line

• Shows the distance between the two lines
• Helps to see immediate changes

Practical MACD Trading Signals

Method 1: Zero Cross (Crossing the Zero Line)

Buy Signal:

• MACD crosses above the Central Line (from - to +)
• Indicates a trend change from downtrend to uptrend

Sell Signal:

• MACD crosses below the Central Line (from + to -)
• Indicates a trend change from uptrend to downtrend

Method 2: MACD Crossover (with Signal Line)

Faster than Zero Cross:

Buy:

• MACD crosses above the Signal Line
• Even if MACD is still negative, it shows the negative momentum is weakening

Sell:

• MACD crosses below the Signal Line
• Even if MACD is still positive, it indicates the positive trend is ending

Method 3: Divergence (Contradictory Signals)

Bearish Divergence (Rising but Weakening):

• Price makes new highs but MACD does not
• Indicates the bullish momentum is exhausted → Sell signal

Bullish Divergence (Falling but Weakening):

• Price makes new lows but MACD does not
• Indicates the bearish momentum is exhausted → Buy signal

Combining MACD with Other Tools

MACD performs best when used with:

MACD + RSI:

• RSI indicates overbought/oversold conditions (Overbought/Oversold)
• MACD confirms trend continuation
• Wait for RSI to enter oversold zone, then MACD crosses above the Central Line = Strong buy

MACD + Bollinger Bands:

• Bollinger Bands squeeze = signs of upcoming change
• MACD crossing the Central Line = trend confirmation
• Improves entry timing

MACD + Price Patterns:

• Price forms Head & Shoulders or Double Bottom
• MACD crosses the Central Line with a breakout
• The stronger the pattern, the better

Disadvantages to Know

MACD is a Lagging Indicator (Following Price):

• Signals are slower than actual price movements
• MACD Cross Over occurs faster than Zero Cross but still lagging
• Sometimes it whipsaws with multiple false signals (Whipsaw)

Solutions:

• Never rely on MACD alone
• Wait for 2-3 indicators to confirm
• Set Stop Loss to prevent whipsaw losses

MACD Calculation Example

Using USDCHF data:

Calculations:

• EMA(12) = (Price × k) + Previous EMA × (1 - k)(
• EMA(26) = same method, with k = 2 / (period + 1)
• Signal Line = EMA)9( of MACD
• Histogram = MACD – Signal Line

When Histogram = 0, it’s a critical point = trend reversal signal

Why EMA instead of SMA in MACD

Why does MACD use EMA instead of SMA?

SMA = Simple Moving Average

• Equal weight to all data points
• Smooth line but slow to react
• Less responsive to current prices

EMA = Exponential Moving Average

• More weight to recent prices
• Reacts faster
• Better at capturing trends

Therefore, MACD chooses EMA for quicker, more accurate signals and better timing.

Advanced MACD Strategies

) Momentum Reversal Signals

Look at the slope of the MACD line:

• If MACD is positive but slope is decreasing = weakening uptrend → prepare to sell
• If MACD is negative but slope is increasing (becoming less negative) = weakening downtrend → prepare to buy

( Multiple Timeframe Analysis

Trade more accurately when:

• Daily MACD is strongly positive
• 4-Hour MACD crosses Signal Line upward
• Enter Long on 1-Hour when Zero Cross occurs upward

) MACD + Support/Resistance

• Price tests Support
• MACD remains bullish = Support is strong → buy
• If MACD crosses below during support test = confirmed breakdown → sell

How to Set Up MACD on Mitrade

1. Click “Add Indicators” > select MACD
2. MACD appears below the price chart
3. Click Settings to adjust:
   • FastLength = 12 (Short EMA)
   • SlowLength = 26 ###Long EMA(
   • SignalLength = 9 )Signal Line###

Try other settings:

• FastLength = 5, SlowLength = 35 ###Slower but stronger signals(
• FastLength = 8, SlowLength = 17 )Faster but more whipsaw(

Summary: How to Use MACD

For Beginners:

1. Wait for MACD to cross the Central Line
2. Enter trade when Histogram changes sign
3. Set Stop Loss at a reasonable distance

For Experienced Traders:

1. Use Divergence to catch reversals
2. Combine with RSI to avoid whipsaw
3. Use Multiple Timeframes for confirmation

MACD is not the only method to win, but it is a powerful and reliable tool since 1970. The key is practice, testing, and refining your system to fit your trading style.