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Additional levels might be required by a certain strategy for tracking the signals. For example, selling of an asset at the intersection of the top level on the chart. Once the indicator has been set up and applied to the chart, you can start trading. There are both simple and more complex MACD trading strategies. To understand the MACD principle, let us look at some of these strategies.
The simplest MACD strategy does not require any additional indicators. MACD signals alone will be sufficient for determining the entry points. With this strategy, the orders are opened as follows:. The recommended stop loss level is set below the minimum level of the candlestick that determines the entry point when buying and is above the maximum level when selling.
The take profit should be three times the stop loss or at the closest key price level. Convergence is expressed in approaching the moving direction of the MACD histogram and the price chart. It looks like this:. The chart shows how the price movement slowed down after a strong downtrend, reversed and then went down again, hitting a fresh low. At the same time, MACD also shows a local minimum, but it is higher than the previous one. Although it is now shown in the chart itself, the indicator signals in advance, which is exactly what makes it valuable.
Divergence differs from convergence in that the lines in the chart and at the top of the histogram do not converge but move in different directions the chart line goes upwards whereas the line in the indicator window moves down. To make trading more efficient, you can use other indicators together with MACD. The best option to complement the MACD oscillator would be a trend indicator.
The buy and sell signals will then be as follows:. Although this system can also result in losses, they are compensated by bigger profits due to the strong trend. However, technical analysis experts agree that the charts can have up to five indicators. In this case, it is quite appropriate to use two oscillators. It will allow not only to enter the market in the correct trend direction but also take maximum profit. You can opt not to open the position if the trend started weakening and you missed the chance.
If the situation is reversed, the sell orders will open. In this case, RSI will act as a powerful filter that will prevent late market entry. It consists of a histogram and two lines derived from moving averages. It is important to note that the moving averages used are exponential, and thus will give greater weight to more recent price action. This helps traders identify whether a trend is getting stronger or weaker based on the slope of the MACD lines.
The histogram simply shows the difference between the two lines, giving a visual representation. Thus the histogram is positive when the faster EMA line is on top and is negative when the faster EMA line is on the bottom. Each trader has their own preferred MACD settings, but in general, it is agreed that the best settings for day trading using the MACD are and That said, it is important to recognize that the MACD is a lagging indicator and really needs to be combined with another indicator to truly shine.
All of this is to say that the settings for the MACD are important, but there are other considerations that will be of greater help when creating a successful day trading strategy. The best MACD trading strategy is the one that works best for you, and this will differ based on the psychology and trading strategy of each individual trader.
That said, there are a number of indicator combinations that work well with the MACD. It works the same for oversold signals and going long. The exit signal is when the MACD crosses in the other direction. The MACD indicator can be very helpful for trading based on technical analysis. However, it is not very efficient without other tools. Together with two or three appropriate indicators, MACD will create a system with positive ratio between good and false entry points.
When the line leaves this range, you will get a signal about the asset being overbought or oversold. The Commodity Channel Index line may fall to levels and , which will only indicate that the downtrend is very strong and the market is in a state of deep overselling. Commodity Channel Index is plotted in the same way as other indicators. There are two ways to plot the indicator:. The CCI line will move quickly from level to level when the period is small and it will move smoothly, oscillating mostly around the zero point, when the period is large.
The most effective way to use the Commodity Channel Index, like the majority of oscillators, is to use it as a filter. However, this indicator can also provide highly reliable signals to enter the market. Overbought and oversold are the basic oscillator signals relevant for the CCI as well. Orders are opened with these signals as follows:.
It is worth noting that such signals appear quite often and many of them turn out to be false in the end. It is better to add an additional indicator to the system or to increase the normal oscillation range in order to filter false signals.
Divergence is considered to be one of the strongest oscillator signals. Explicit divergences and convergences are formed much less often than just entering overbought and oversold zones, and therefore they produce a more reliable signal. Convergence and divergence can be identified by drawing lines through two or more local extrema on the graph and the respective local indicator extrema.
When the trend line on the price chart and the trend line on the indicator are moving in the opposite directions, there is high probability of trend changing. You can also exit orders with the Commodity Channel Index signals, when the line crosses the indicator in the opposite range. Each order must be protected with a stop loss set on a local extremum or at a key price level.
Let us add one more indicator — a simple moving average set to periods — to the CCI system in order to improve signals quality and, accordingly, trading efficiency. M15 is the optimal time frame for trading, but let us also add scalping at M5. In conclusion, let us take a look at a more complex CCI strategy that, nevertheless, is suitable both for beginners and professional Forex traders.
Beginners will be able to quickly understand the strategy through clear entry-exit rules, and experienced traders will be able to improve the system and achieve even greater efficiency with it. H4 is the optimal time frame for trading. This system offers some flexibility with closing the positions. Given the 4-hour timeframe, a trader can manually move the stop loss, setting the exit price using the Parabolic marker. Thus, you can capitalise on the entire trend without limiting your profit to a pre-set level.