An in-depth look at the MACD indicator: how, what, when, and why to use it.
Utilizing the MACD indicator on Olymp Trade and beyond is the next step in bolstering your toolbox. The Moving Average Convergence Divergence aka MACD, is used to identify emerging trends. In this article, we will look into how, when, and why traders around the world turn to this tool.
Why use the MACD?
The MACD is an oscillator that helps traders stay ahead of emerging trends. Detecting trends before they happen allows traders to capitalize on more of the price action. Profitable traders focus on bettering their odds of success. Learning to use the MACD indicator Olymp Trade is a step in the right direction. Remember no indicator is 100% accurate.
What is the MACD?
The MACD is a graph below the asset’s chart that combines two moving averages and a histogram. Of the three parts, the histogram represents the distance between the “slow” and “fast” moving averages. The green line represents the “slow” moving average, and the red the “fast.” Though green and red are the default for the MACD indicator on Olymp Trade, the colors can be changed.
The slower green line is calculated by taking the average of the highest high and lowest low for the previous twenty-six periods, adding to the average of the most recent twelve time periods, divided by two.
While the faster red line is calculated by averaging the highest high and lowest low for the previous nine periods.
The blue histogram running through the middle of the chart spreading from the central white line represents the difference between the red and green lines.
Can the MACD be used for intraday trading?
The MACD is great for day traders. Make more informed trades with the MACD indicator on Olymp Trade. Watch the lines moving together to spot changing trends throughout the day. This oscillator helps focus on changing trends before they fully develop, leaving time to capitalize.
For Forex traders, the two moving average lines crossing often represent a good time to open or close a trade. Since Forex trades must be opened and closed, it is best to open a trade as the trend begins and close it as the trend ends. Timing the closing trade is crucial to capturing your maximum profit. Therefore keep a keen eye on this indicator.
For Fixed Time traders capitalizing on a trend is similar. Spot the trend and open the trade. However, it is important to remember to set the trade time to the same as the chart’s interval. Stop trading as the MACD green line loses momentum. As the trend weakens, it is less beneficial for Fixed Time Trades.
How to day trade with the MACD indicator Olymp Trade
Using the MACD indicator on Olymp Trade is simple. The math behind it can make this oscillator seem intricate, but in practice, it is not.
Three main day trading strategies have spawned from the MACD.
Strategy 1. Intersecting Lines
The Intersecting Lines strategy focuses mostly on the two Watch for the two moving averages to cross over each other. This is considered one of the most reliable signals this indicator can produce. How and where the lines cross may impact how strong a signal it may be.
Opening an up trade signifies a trader believes prices will rise. An up trend is expected when the faster-moving red line crosses above the slower green line from below. The further below the histogram, the two moving average lines intersect, the longer the trend may last.
- When to close a Forex up trade
Closing a trade allows traders to claim their profits when trading Forex. When the red line crosses below the green line from above, close the trade.
Traders typically want to ride a trend as long as they can. Knowing when to close a trade is what makes it profitable.
- When to open a Forex down trade
Traders open a down trade when they believe prices will fall. When the red line sinks below the green, a downtrend is likely. Like the uptrend capitalized on by the up trade, the further the two lines intersect above the middle line, the longer the potential trend.
- When to close a down trade
Closing a down trade is similar to closing an up trade. Look for the trend to reverse and the red line to cross below the green line from above.
Strategy 2. Crossing the histogram
The second most commonly used MACD strategy focuses on the histogram and the red line representing the faster moving average. The middle histogram line can act as a support or resistance line for prices. Therefore, when the red line crosses above or the middle line it could signal a strong trend in that direction.
To execute this strategy, traders watch for the faster red line crossing the center white line. When the red line rises above the middle line, the trend is likely headed upward. The opposite is also true when the red line drops below the white.
This strategy is less accurate than the Intersecting Lines strategy, but still a good signal to keep an eye on for validating another signal.
Strategy 3. Divergence
The third basic strategy relies on divergence. Divergence is when the two moving average lines move farther away from each other. Their separation signals the strength of the current trend.
When the slower green line moves in the opposite direction of the prices on the chart above. A bullish divergence occurs when an asset forms a lower low while the green MACD line reaches a higher low, or the line moves higher as the prices fall. A bearish divergence is created if an asset reaches a higher high and the MACD green line finds a lower high, or the line moves lower as prices rise.
To profit you make trades with the trend. This strategy is good but must be monitored for slowing momentum.
Properly utilizing this strategy requires practice in a demo account to understand the nuances of how best to use this advanced method.
Give the MACD a try today on Olymp Trade.
MACD indicator settings for day trading
Adding the MACD indicator on Olymp Trade below the asset’s chart is simple. At the bottom of the price chart on the left, there are three buttons with symbols on them. Click the middle "Tools" button with the protractor on it to open the list of indicators and oscillators.
The list of tools will open to the left, near the bottom, but at the top of the "Oscillator" section, you will find MACD. Click on the name, and the chart will appear below the asset’s price chart.
To set the MACD on Olymp Trade for day trading follow these instructions.
- Set the slower green line to 26 periods.
- Set the faster red line to 9 periods.
The periods and colors for these lines can be adjusted to any trader’s preference. Take the time to understand how these adjustments help or hinder the accuracy of the signals.
MACD advisor on Olymp Trade
What is the MACD advisor? It is a tool that provides non-stop trading signals based on the MACD strategy. This is a tool that helps improve your market analysis to an automated system.
The advisor combines three indicators: MACD, Parabolic SAR, and EMA, to provide effective analysis for Fixed Time trading. Learn more about the Fixed Time Trades mode in this article.
This advisor is a great way for traders to effectively use the MACD indicator on Olymp Trade at any experience level.
Conclusion
There you have it, an in-depth look at the MACD indicator on Olymp Trade and beyond. Use it to anticipate trends and their ends.
This tool can help elevate your trading. Take the time to acquaint yourself with the MACD in your demo account.
Take advantage of this free indicator and many others on the Olymp Trade platform.
