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MACD Indicator 
Last Updated: June 30, 2020
Trading
By Rayner
Guides

This won’t be the usual MACD indicator stuff you see

The Monster Guide
online.
to Candlestick
Patterns
I won’t tell you to…
The Price Action
Look for a MACD Divergence
Trading Strategy

Wait for a MACD Crossover Guide

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 Wait for the MACD Line to cross above 0 The Best Trading
Books of All Time
Here’s why…
The 5 Best Trend
The MACD is just like any other indicators — it’s NOT Indicators That
p
meant to be traded in isolation. Work

st
The 5 Types of
If you want to use the MACD indicator successfully, it must
Forex Trading
complement the price action of the markets.
Strategies That
Work
You’re probably thinking:

The Support and

“Err… so how do I do it?”
Resistance Trading
Strategy Guide
Well, you’re in the right place because you’ll discover…

The Moving
What is the MACD indicator and how does it work?
Average Indicator

Common Mistakes: How not to use the MACD indicator Strategy Guide

How to use MACD histogram and identify momentum The Complete

reversal
Guide to Finding

MACD Indicator: How to use it and increase your High Probability

winning rate Trading Setups

MACD Histogram Squeeze: How to identify explosive

How Much Money
breakout trades about to occur
Can You Make from
Trading?
Or if you prefer, you can watch this training below…

Swing Trading
Strategies That
Work

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 MACD Indicator Secrets: 3 Powerful Strategies to P…
P…

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About Rayner
Teo

Rayner Teo is an

MACD Indicator: What is it and

independent
trader, ex-prop

how does it work trader, and founder

of
TradingwithRayner
The Moving Average Convergence Divergence (MACD)
.
indicator is a momentum and Trend Following indicator
developed by Gerald Appel. He is the most
followed trader in
Here’s the MACD formula: Singapore with
more than 100,000
MACD Line: (12-day EMA – 26-day EMA) traders reading his
blog every month...

Signal Line: 9-day EMA of MACD Line

Continue reading

MACD Histogram: MACD Line – Signal Line

Now…

You’re probably thinking:

“It’s too complex and I don’t understand what it means.”

And your brain shuts down.

But wait. Privacy - Terms

Hang on.

Don’t run away.

p
Because I’m about to break down the MACD formula step
by step — that even a 10-year-old can understand. st

Sounds good?

Then read on…

Demystifying the MACD indicator step by

step

Now some of you might wonder:

“What’s the best MACD settings?”

Well, there isn’t the best setting because it doesn’t exist.

And for this post, I’ll use the default settings on MACD.

With that said, let’s break down the MACD indicator (step
by step).

It’ll be easy, I promise.

#1: MACD Line

All you need to do is take the value of the 12-day EMA and
minus against the 26-day EMA (you can find it on your
charts with zero calculations).

And poof!
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That’s your MACD Line.

Here’s an example:

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I told you it was easy, right?

#2: The Signal Line

This gets even easier.

Just take the historical value of the MACD Line and divide
by 9.

And that’s it — you’ve got your Signal Line.

Here’s an example:

Let’s say you have a MACD Line of these values…

1, 2, 3, 4, 5, 6, 7, 8, 9

Add the numbers up (which is 45) and then divide by 9.

So, you’ll get 45/9 = 5

Next…
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#3: MACD Histogram

This is so easy (it’s laughable).

Just take the value of the MACD Line and minus against the
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Signal Line.
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Tada!

That’s your MACD Histogram.

Here’s what I mean…

Now you might be wondering:

“So, which is the best MACD indicator

settings?”

Here’s the deal:

There’s no such thing as a best MACD settings because the

market is always changing.

What works best right now is unlikely to work the same in

future.

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So, the important thing isn’t to optimize for the best MACD
indicator settings — it doesn’t exist.

Instead, you should understand the concept behind MACD

so you can use it to meet your trading needs. p

Does it make sense? st

Then let’s move on…

Common Mistakes: How NOT to

use the MACD indicator
Now…

Let me share with you 2 common mistakes traders make

when using the MACD indicator.

They are:

Trading the MACD crossover

Misinterpreting the MACD histogram

Let me explain…

Trading the MACD crossover

This technique might work in strong trending markets.

But remember, most of the time the markets are in a range.

This means the MACD crossover will give many false

signals that lead to “death by a thousand cuts”.

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An example:

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Now, there are better ways to use the MACD crossover (but
more on that later).

Next…

Misinterpreting the MACD histogram

Look at the MACD histogram below:

You’re probably thinking:

“There’s strong momentum in the move. It’s time to buy!”

Wrong!

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Because when such a move occurs, it’s usually too late to
enter, and the market is likely to reverse.

Instead, a better approach is to go against the momentum

— and trade the reversal. p

Here’s how… st

How to use the MACD histogram

and identify momentum reversal
When I first started trading, I like to “chase” breakouts.

The more bullish the candles, the likelier I’ll buy the
breakout.

However…

I was bleeding my account.

That’s when I realized I entered my trades “too late”.

I bought when the price is about to reverse in the opposite

direction.

And this led to an AHA moment.

I wondered…

“What if I stopped chasing breakouts?”

“What if I took the opposite side of the trade?”

“What if I look to short when there’s strong bullish

momentum?” Privacy - Terms
It worked much better!

However…

p
I had trouble explaining to traders what strong momentum
is. st

So…

That’s where the MACD histogram comes into play.

Here’s how it works…

1. Wait for the price to come into Market Structure (like SR,
Trendline, etc.)

2. MACD Histogram shows strong momentum (you want

to see a high peak/trough)

3. Wait for price rejection before trading in the opposite

direction

Here’s an example:

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MACD Indicator: How to use it

and increase your winning rate
The concept is simple.

We’ll use the MACD indicator to define the higher

timeframe trend, and then trade in the direction of it.

Here’s how it works:

Define your higher timeframe (HTF)

If the HTF MACD Line crosses above Signal Line, then

look for long setups (on your entry timeframe)

If the HTF MACD Line crosses below Signal Line, then

look for short setups (on your entry timeframe)

I’ll explain…

Define your higher timeframe

Let’s say your entry timeframe is 4-hour, then your higher

timeframe is the Daily.

Or, if your entry timeframe is the Daily timeframe, then

your higher timeframe is the Weekly. Privacy - Terms
Your higher timeframe can be anywhere between a factor
of 4 – 6 of your entry timeframe.

If the higher timeframe MACD Line crosses above

Signal Line, then look for long setups (on your entry p
timeframe)
st

An example:

If the higher timeframe MACD Line crosses below

Signal Line, then look for short setups (on your entry
timeframe)

An example:

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 p

st

MACD Histogram Squeeze: How

to identify explosive breakout
trades about to occur
Here’s a fact:

Explosive breakouts usually occur when there’s low

volatility in the market — you’ll notice the range of the
candles gets small and “tight”.

But if you’re a new trader, this might not be easy to spot.

So, that’s when the MACD Histogram can help you.

Here’s how…
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1. The price comes into key Market Structure (like SR,
Trendline, etc.)

2. The MACD Histogram looks almost “flat” without any

visible peak/trough
p
3. Enter the breakout when the price breaks the Market
Structure
st

Here are a few examples:

This is powerful stuff, right?

Now you might be wondering:

“For how long should the MACD histogram be flat?”

There are no fixed rules here.

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But generally, I’d like to see it flat for a minimum of 5
candles (or more).

Because the longer it remains flat, the likelihood of a

stronger breakout. p

Conclusion st

So here’s what you’ve learned today:

The MACD is a Trend Following and momentum

indicator

Don’t “blindly” trade the MACD crossover, it’s a losing

strategy. Instead, use it as a trend filter so you can
increase your winning rate

You can use the MACD histogram to “predict” market

reversals — look for a strong move into Market
Structure followed by a price rejection

When the MACD histogram is flat, it signals the market

is ready for a breakout

Now here’s a question for you…

How do you use the MACD indicator?

Leave a comment and share your thoughts with me.

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