How to use the MACD
What are some of the ways to use the MACD?
MACD can be used to identify the trend as it is a momentum oscillator. But it can also be used as a indicator to help give you trading signals. There are also ways to use the MACD as a way to spot divergences. Let me go through them 1 at a time.
MACD can be used to identify the trend as it is a momentum oscillator. But it can also be used as a indicator to help give you trading signals. There are also ways to use the MACD as a way to spot divergences. Let me go through them 1 at a time.
How to identify the trend with the MACD?
The MACD consist of 2 lines, the signal line and the MACD line. Both lines are made up of EMA. So we have the Signal line which is the fast line, usually of a short time frame EMA. I use the 13EMA. And also the MACD line which is the longer time frame EMA, which I use the 34EMA.
Look below at the chart which shows the daily of the
$E-mini NASDAQ 100 Futures(DEC4) (NQmain.US)$ .
The MACD consist of 2 lines, the signal line and the MACD line. Both lines are made up of EMA. So we have the Signal line which is the fast line, usually of a short time frame EMA. I use the 13EMA. And also the MACD line which is the longer time frame EMA, which I use the 34EMA.
Look below at the chart which shows the daily of the
$E-mini NASDAQ 100 Futures(DEC4) (NQmain.US)$ .
You can see the 2 lines which the orange one is my signal line and the blue which is my MACD line. To spot trends, when both lines are above the 0 point, it is an uptrend. and when they are below the 0 point, it is a downtrend.
So this is often misunderstood as the signal line crossing over the MACD line. the signal & MACD crossover is to show you the momentum shift whereas to identify trend, you need to see whether the lines are in positive or negative territory.
How to use the MACD indicator for trading signals?
Most people use the MACD as a indicator to give signals for Long or Short. What most traders will do, when the signal crosses over the MACD line from the bottom, it creates the green bars on the histogram. And that signifies upward momentum. You can see from the chart below. $E-mini NASDAQ 100 Futures(DEC4) (NQmain.US)$
Most people use the MACD as a indicator to give signals for Long or Short. What most traders will do, when the signal crosses over the MACD line from the bottom, it creates the green bars on the histogram. And that signifies upward momentum. You can see from the chart below. $E-mini NASDAQ 100 Futures(DEC4) (NQmain.US)$
So on the chart above you could see the signal line (Orange line) crossing above the MACD line (blue) which signifies a upward momentum. shortly after you noticed the price started pushing upwards. So most traders would initiate a long trade or a buy position when they spot this crossover. They will open a short for the opposite when the signal line crosses the MACD line from above.
You can spot the bars on the histogram. When the signal line is above the MACD line, it forms the green bars which is upward momentum. If the signal line is below the MACD line, it forms the red bars which is downwards momentum.
The higher the bars, the stronger the momentum. So if you see that the bars are getting smaller, generally it means the momentum is getting weaker and a change of momentum can be around the corner.
Which leads us to the final use of the MACD which is also my favourite.
Which leads us to the final use of the MACD which is also my favourite.
How to use the MACD to spot divergences?
Using the MACD to spot divergence is one of my favourite usage of this indicator. The name MACD even explains the usage of this indicator. Moving average convergence divergence.
Using the MACD to spot divergence is one of my favourite usage of this indicator. The name MACD even explains the usage of this indicator. Moving average convergence divergence.
MACD is a momentum oscillator. Which means it is able to spot divergence of price and momentum. What do I mean by that? if the price is moving upwards, the momentum pushing it up should be getting stronger. However when the MACD shows a weaker momentum as the price is pushing up, this is showing a buying exhaustion or a bearish divergence as we call it.
$E-mini NASDAQ 100 Futures(DEC4) (NQmain.US)$
$E-mini NASDAQ 100 Futures(DEC4) (NQmain.US)$
You can see from the chart above, we finished a pullback on late October and was pushing upwards to a new high. the MACD was showing no divergences of price and momentum as we marched higher.
But what happened come late November? We created a new high at 16767.50 on the NQ while the MACD showed a weakened momentum. This was a perfect short signal to me as it is showing a buying exhaustion. This was how I knew the correction we are currently in was coming.
The confirmation of the divergence was during December when we started selling off and couldn't make another new high.
$E-mini NASDAQ 100 Futures(DEC4) (NQmain.US)$
$E-mini NASDAQ 100 Futures(DEC4) (NQmain.US)$
This is the follow up chart after I spotted that divergence. The index plunged as we know and many are still stucked at the top.
Now as we are pushing to lower lows, you can see the MACD indicator is showing selling exhaustion. That is also the reason why I said the correction is coming to an end.
This is the only reason why I use the MACD. To spot divergences.
As always trade safe and invest wise!
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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Investing 101 OP onglai88 : it's a bearish divergence. like I always say, if you can't short the top. you will not be able to buy the lows.
mr kian : it looks bullish becoz of heavy volume buying at the lows that correct?
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