Moving Average Convergence Divergence (MACD) 

Intraday Trading Strategy

By Ninad Bhatkar

6th June 2022

What is Moving Average Convergence Divergence (MACD) ?

o The Moving Average Convergence Divergence (MACD) is a

lagging indicator used to locate trends within the market. It
consists of a histogram and two lines derived from moving
averages.
o 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.
o 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.
Proper MACD Settings
for Day Trading

 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 3-10-16 and
5-34-1
Trading Strategies using the MACD
Now that we understand the basics of the MACD stock indicator. 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. Some popular
combinations are the MACD with the MFI or TRIX, but the most popular
combination is MACD with Bollinger Bands. 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.
Crossovers

Meaning :

• A crossover refers to an instance where an indicator and a price, or multiple indicators, overlap and
cross one another.
• Crossovers are used in technical analysis to confirm patterns and trends such as reversals and
breakouts, generating buy or sell signals accordingly.
• Moving average crossovers are common, including the death cross and golden cross.
MACD + Crossovers

Conditions :

• The MACD line and signal line can be utilised similarly as a stochastic oscillator, with the crossover
between the two lines providing buy and sell signals.
•  As with most crossover strategies, a buy signal comes when the shorter-term, more reactive line – the
MACD line – crosses above the slower line – the signal line. Conversely, when the MACD line crosses
below the signal line, it provides a bearish sell signal.
• As the crossover strategy is lagging by nature, it is based on waiting for a movement to occur before
opening a position
• In weaker market movements, the MACD’s biggest problem is that the price may have reached a reversal
point by the time a signal is generated. This would be referred to as a ‘false signal.’ It’s worth mentioning
that techniques that rely on price action for signal confirmation are frequently seen as more dependable
Above is the Ashoka BuildCon 1D chart showing MACD with Crossover.
Relative Vigor Index (RVI)

Meaning :

• The Relative Vigor Index (RVI) is a technical momentum indicator.

• The RVI oscillates across a pre-determined center line rather than a banded trend.
• Divergences between the RVI indicator and price suggest there will be a near-term change in the trend.
• The RVI's usefulness is based on the observed tendency for prices to close higher than they open during
uptrends, and to close lower than they open in downtrends.
MACD + Relative Vigor Index (RVI)

Conditions :

• The Relative Vigor Index is an oscillator that compares the closing price to the price range of the
stock.
• The calculation is a little difficult. To put it another way, think of the RVI as a cousin of the
Stochastic Oscillator.
• It is possible to provide more context for overbought/oversold scenarios by including an oscillator.
This provides context for the MACD stock indicator, confirming whether the trend’s momentum or
strength is intact.
• Combining these two tools has the basic goal of matching crossings.
• In other words, if one of the indicators has a cross, we wait for the other indicator to cross in the
same way. When this happens, we either buy or sell.
Above is the Ashoka BuildCon 1D chart showing MACD with Relative Vigor index.
Money Flow Index (MFI)

Meaning :

The Money Flow Index (MFI) is a technical oscillator that uses price and volume data for
identifying overbought or oversold signals in an asset. It can also be used to spot divergences which warn of
a trend change in price. The oscillator moves between 0 and 100.
Unlike conventional oscillators such as the Relative Strength Index (RSI), the Money Flow Index
incorporates both price and volume data, as opposed to just price. For this reason, some analysts call MFI the
volume-weighted RSI.
MACD + Money Flow Index (MFI)

Conditions :

• An MFI reading above 80 is considered overbought and an MFI reading below 20 is considered
oversold,1 although levels of 90 and 10 are also used as thresholds.
• A divergence between the indicator and price is noteworthy. For example, if the indicator is rising while the
price is falling or flat, the price could start rising.
• We wait for a bearish cross of the MACD lines when the MFI signals an overbought stock. If this occurs,
we will be forced to go short.
• In the same way, it works in the other direction. A long signal is generated by an oversold MFI reading and
a bullish cross of the MACD lines. As a result, we remain until the signal line of the MACD breaks the
trigger line in the opposite direction.
 Sell

Long

This is the 10-minute chart of Ashoka BuildCon.

The first green circle highlights the moment when the MFI is signaling that BAC is oversold. 30 minutes later, the MACD
stock indicator has a bullish signal and we open our long position at the green circle highlighted on the MACD.
We hold our position until the MACD lines cross in a bearish direction as shown by the red circle on the MACD. This
position would have brought us profits of 60 cents per share for about 6 hours of work.
Triple Exponential Moving Average (TEMA)

Meaning :

• The triple exponential moving average (TEMA) is a modified moving average designed to smooth large price
fluctuations.
• This makes it easier to identify trends without the lag associated with traditional moving averages.
• It does this by taking multiple exponential moving averages (EMA) of the original EMA and subtracting out
some of the lag.
MACD + TEMA 

Conditions :

• TEMA smoothes out three different EMA’s to provide an additional layer of validation along with our
MACD indicator.
• The TEMA indicator, on the chart, is layered over the candlesticks. Here we are looking for the stock
price/candlestick to break above the TEMA line, and the Signal Line to cross up and over the MACD Line.
• Trade signals are generated when the fast line crosses the MACD stock indicator and the security price
breaks through the TEMA.
• We will exit our positions whenever we receive contrary signals from both indicators.
• Although the TEMA can produce more signals in a choppy market, we will use the moving average
convergence divergence to filter these down to the ones with the highest probability of success.
 Sell

d
ren
Buy is hT
ll
Bu

This is a 10-minute chart and a 50 period TEMA. Using the longer periods for the TEMA captures only the big moves and
reduces the amount of signals we see – we only want to focus on the big ones. As you can see, the Signal Line crosses over
the MACD line at the same time the stock price is breaking above the TEMA line. The stock breaking the TEMA line is a
bullish move, and we validate this move by seeing a Signal Line crossover MACD.
We close this position out when the reverse happens and we see a reverse crossover of MACD. Approx. 5 hours later we get
the close signal.
Reference

TradingView.com

(229) The MACD Indicator For Beginners [Become An Expert Immediately] - YouTube