MACD Indicator Settings for Day Trading
MACD stands for moving average convergence divergence. MACD is a trend-following-capturing momentum indicator that exposes the connection between 2 moving averages (MAs) of prices
We can use the MACD for:
Divergence
Intraday trading
Crossover trading
Scalping
Breakouts
What is the MACD indicator?
The MACD indicator was created by Gerald Appel in 1970. The MACD indicator formula is calculated by subtracting the 26-day Exponential Moving Average (EMA) from the 12-day EMA.
A nine-day EMA of the MACD is called the signal line, which is plotted on top of the MACD. This is a default setting. The MACD is a lagging indicator and a trend-following indicator that has withstood the test of time. This is why it is so important to know the right MACD indicator settings for day trading to implement an easy MACD trading strategy.
Simplest MACD strategy
We call MACD strategy (the signal line crossover, or MACD crossover trading strategy). This method works better in volatile markets with strong trends(2x and 3x ETFs and tech stocks).
The Signal Line is just an EMA of the MACD Line for 9 times. Since it is a MACD line average, it follows the formation of the MACD line. A bullish crossover occurs when the MACD line moves upwards and crosses beyond the signal line.
A bearish crossover occurs when the MACD moves downwards and crosses under the signal line. When this happens, both lines move as far apart from each other as they can. This means that the momentum of the price will continue moving in the desired direction.
Using the MACD by looking for a crossover is a common MACD trading strategy
MACD Divergence
When the price makes a lower low, but the MACD makes a higher low – we call it bullish divergence. If the MACD makes a lower high, but the price makes a higher high – we call it bearish divergence.
Divergence is a sign that the price might reverse, and it’s confirmed by a trendline break. These can be important for a MACD swing trading strategy.
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