MACD Strategy: I’m about to show you that this MACD strategy is one of the highest win rate strategies you can possibly do in trading. It is very easy to use, works in almost every single market, and most importantly, it makes money. Well, well, enough talk; let’s get straight into it.
The MACD, or moving average convergence, or divergence, is one of the most popular technical indicators used by traders. Essentially, Essentially, this indicator uses moving averages to find trends in markets, and it’s pretty damn good at it too. If you’re an experienced trader, you’ve probably used or heard about the MACD indicator before.
But the MACD indicator by itself is just alright, to be honest. So, make sure you watch this full video to see how I pair it with some other indicators to make it perform so much better. First things first, let’s add the MACD indicator to our chart. To do that. . Now that we have the MACD indicator added, let’s make sure we know how the MACD actually works.
The MACD is made up of four different components. The MACD line, the signal line, the histogram, and the zero line. The MACD line, which is the blue line, is usually a 12-day moving average; the signal line, which is the orange line, is usually a 26-day moving average.
Next, we have the histogram, which represents the difference between the MACD line and the signal line. So, So, for example, the smaller the space between the two lines, the smaller the histogram gets. The bigger the space, the bigger it gets. You can also see that once the MACD line crosses above the signal line, the histogram turns green, and if the MACD line crosses below the signal line, it turns red.
And finally, we have the zero line, which basically represents the center of the MACD indicator. Now that we know the four components, let’s make sure we know how to use them. The MACD indicator is insanely good at finding trends in markets.
How you can tell if a chart is about to have an upward trend is by looking for a cross upwards between the MACD line and the Signal line. For example, here the macd crosses above the signal line, indicating the chart is in upward momentum, and here the macd crosses below the signal line, indicating it’s in downward momentum. You can also use the histogram to indicate how much momentum there actually is.
So, if the histogram is getting bigger, that means there is an increase in momentum. If it’s getting smaller, there’s a decrease in momentum. So how you want to use this indicator is when the lines cross upward, but only if they cross below the zero line. If they cross and are above the zero line, you wouldn’t enter a trade.
It’s the same thing with shorting; you only enter a short trade if the lines are crossing downward and are above the zero line. So, So, as you can see, this indicator is extremely easy to use. But the problem most traders encounter is that they use this indicator by itself. Let me tell you why this doesn’t work. The MACD indicator works extremely well if the market is in a trend.
So, if the market is in an uptrend.
You never want to trade against the trend because the odds will always be against you. So, an easy way to figure out if the market is in an uptrend is to You simply need to add a 200-day moving average. To do this Once we have the indicator added, you’ll just see a single line. If the price is above that line, the market is in an uptrend. If the price is below that line, the market is in a downtrend.
So after learning that we only want to buy when the market is in an uptrend, if we’re going long, of course, course, if we put all this together, we buy if the Macd lines cross below the zero line mark and the current price is also above the 200-day moving average. This will guarantee that you are only trading when the market is in an uptrend, which is a very powerful combo.
If you wanted to be short, you would just do the exact opposite. Make sure the price is below the 200-day average and the Macd lines are crossing downward above the zero line. So as an example, we would enter a long trade right here because the Macd lines are crossing upward below the zero line and the current price is above the 200-day moving average.
Now what I like to do is set a stop loss below the 200-day moving average, so the 200-day moving average almost acts as a wall that the price has to break through to hit my stop loss. Then I like to have a 1.5 profit ratio for my profit target mark. So, as you can see in this example, the strategy worked exactly as we wanted it to, and we made money.
But we can still make this trading strategy even better. This Macd strategy, combined with a 200-day moving average, works extremely well only if there is a lot of price movement. Where the strategy starts to get kind of iffy and give false signals is when the chart starts going sideways and losing momentum.
So as you can see here, the chart is moving sideways and has lost almost all of its upward momentum, and the macd is giving lots of false signals. If you traded here, odds are you probably lost money. To fix this issue, we have to combine the MACD with price action.
To do this, identify a key support or resistance where the price hits and bounces. So as you can see, the price goes down, hits this point, and reverses upwards. The next step is to wait for the price to hit the same key level again. Once it does, we are expecting the price to bounce off this support and go upwards just like it did before. But as a clear note, just because we made the support and it bounced off this before doesn’t mean that it will always do that again.
It can easily break through the support and drop lower if it has enough momentum. If we want to make sure the price is about to change in momentum, that’s when we bring out the MACD indicator. So what you would do is make sure the price is above the 200-day moving average. Once the price hits the support level, wait for the lines on the MACD to cross below the zero level, and that’s when you enter the trade.
So I just revealed to you how the MACD, 200-day moving average, and using support and resistance levels give an extremely high win rate with this strategy. All I ask for in return is for you to take 2 seconds of your time and like this video. If you want to stay up-to-date with my future strategies, subscribe.
Because in my next video, I’m planning to release a strategy that works even better than this MACD strategy. I hope you guys learned something from this video, and I’ll see you guys next time.