Moving average convergence/divergence

Although the (MACD) Moving average convergence/divergence is typically used as a trending indicator, it can also be used as an oscillator.

It helps us analyze the direction of the price movement, how strong the movement may last, and the likeliness of the change in trend.

This facilitates possible entry into a trend when it starts and exit before it finishes.

How do we read the MACD indicator? 

It consists of three readings together in a box underneath the price chart.

A.MACD line

B.Signal line

C.Histogram

The Illustration Chart Below Depicts How The Indicator Appears On A Chart:

Number 1: Signal line

Number 2: MACD

Number 3: Histogram

The moving average lines MACD line is a moving average line that tracks the underlying asset’s price.

The signal line is a moving average of the MACD line and interacts with it to produce trading signals.

The red signal line is a moving average of the MACD line itself. It smoothes out the movement of the MACD line and interacts with it to produce trading signals.

The Histogram

The histogram displays the difference between these two lines.

The momentum of a price move is determined by the bars that appear below or above a horizontal zero line.

This helps us understand when a trend is gaining strength and vice versa.

Market Hunt Tick Trading Platform With The MACD Indicator:

Selling signal: It is a sell signal when the MACD has crossed below the signal line. The signal is more potent if the histogram bars are also below the zero line.

If the MACD crosses below the signal line, but the histogram has not confirmed it by producing bars below the zero line, this is a sell signal but not strong.

Buying Signal: When the MACD crosses below the signal line, it is a buy signal. If the histogram is above the zero line, the signal is stronger.

If the MACD crosses above the signal line, but the histogram does not confirm it by having its bars above the zero line, this gives a buy signal, but not a stronger one.

The chart below depicts the MACD providing a strong sell signal:

Number1: MACD has crossed down below the Signal line

Number 2: The histogram is below the zero line.

Number 3: MACD has crossed up above the Signal line

Number 4: Histogram is above the zero line

How to change the MACD settings in the Market Hunt Tick?

The standard settings of the MACD indicators are

Long cycle-26

Short cycle- 13

Signal period -9

Moving Average Type: Exponential moving average

Colour: Red

Based on how quickly the indicator reacts to price action and how often it gives us trading signals, we can alter these settings.

The illustration chart depicts how the indicator appears under the standard settings:

Number 1: MACD line

Number 2: Signal line

Increasing The MACD Settings

The increase in the settings will slow down the signals.

This will prevent false alerts.

As a result, the genuine moves may be missed. The illustration chart below depicts how the MACD looks when the settings have been increased.

Long cycle-50

Short cycle- 21

Signal period -12

Moving Average Type: Exponential moving average

Colour: Red

Number 1: MACD line

Number 2: Signal line

Significantly fewer trading signals are noted.

Decreasing the MACD settings

Opposite effects are noted.

It gives more signals as the indicator becomes sensitive. This results in more false signals.

The illustration chart below depicts how the MACD looks when the settings have been decreased.

Long cycle-13

Short cycle- 6

Signal period -5

Moving Average Type: Exponential moving average

Colour: Red

Number 1: MACD line

Number 2: Signal line

Suppose the indicator’s settings have to be changed. In that case, it is necessary to monitor whether our changes improve our trading results, logging and comparing any profit or losses we make from the same trading strategy under different indicator settings.

Nut Shell:

An overview of the lesson discussed so far

Although the (MACD) Moving average convergence/divergence is usually used as a trending indicator, it can also be used as an oscillator.

It helps us analyze the direction of the price movement, how strong the movement may last, and the likeliness of the change in trend.

This facilitates possible entry into a trend when it starts and exit before it finishes. Enables buy or sell decision of an asset.

The MACD line is a moving average line that tracks the underlying asset’s price.

The signal line is a moving average of the MACD line and interacts with it to produce trading signals.

The histogram displays the difference between the MACD and signal lines and indicates the momentum of a price move and when it may be about to end.

The increase in the settings will slow down the signals. This will prevent false signals.

The decrease in the settings will increase the signals. This will also result in more false signals.