- 1 Setting up the MACD indicator on IQ Option
- 2 Best settings for MACD indicator
- 3 Understanding how the MACD indicator works
- 4 MACD divergence
- 5 Is MACD reliable?
- 6 GENERAL RISK WARNING
You will learn the best settings for MACD indicator today, but we will start with the basics. The Moving Average Convergence Divergence (MACD) is a trend-following and momentum indicator. It's one of the simplest and most effective indicators to use when trying to identify trends and possible trade entry points. This indicator has two moving averages that oscillate above and below a center zero line.
This guide will teach you how to set up the MACD indicator and use it to trade on IQ Option.
Setting up the MACD indicator on IQ Option
After logging into you IQ Option trading account, set up your candle sticks chart. Next, click on the indicators feature and select Momentum. Finally, select MACD. This indicator comes with the settings of 12, 26 and 9. Leave them as they are.
Best settings for MACD indicator
The IQ Option platform has dozens of built-in indicators that help in chart analysis. Take a look at the MACD settings interface in the image below.
The vast majority of indicators have predefined settings that you can change. When you drop an indicator into a chart, the indicator has the default settings set. For MACD we have Fast period, Slow period and Signal line settings. The defaults are written as MACD(12,26,9), where Fast period = 12, Slow period = 26 and Signal line = 9.
These default settings that IQ Option suggests for MACD are also common on many other technical analysis platforms. If a tool is used by the majority in a particular way, it makes sense to use the same way as well. We, therefore, consider these to be the best settings for MACD indicator.
What is the best MACD setting for day trading?
Day trading and scalping, which is a special case of day trading, do not require changes to MACD settings.
However, there is a group of traders who, for fast trading, prefer parameters which they consider to be the best settings for MACD indicator. These settings are MACD(5,35,5). The indicator reacts faster to price changes with these settings. A comparison of these two popular settings can be seen below on the EURUSD chart.
Understanding how the MACD indicator works
The MACD indicator is all about the convergence and divergence of the two moving average lines. The EMA12 line reacts to price changes faster than the EMA26 line.
The convergence or divergence of these two moving averages is a signal that a trend is developing (or not).
When the EMA12 crosses above the EMA26 and moves above the zero line, this is a positive divergence. As the gap between the two lines increases, the stronger the upward price momentum becomes. At this point, you should enter a buy position.
When the EMA12 crosses below the EMA26 and moves below the zero line, a negative divergence is occurring. As the gap between both MAs increases, so does the downward momentum of the prices. At this point, you should enter a sell position.
MACD divergence occurs when the two moving average lines seem to fall while the prices are rising and vise versa. This phenomenon signals a potential trend reversal. Trading MACD divergences isn't advisable. It's best to wait until the MACD indicator signals a clear trend.
Pros and Cons of Using MACD Indicator 📊
- Pros: 😊
- Easy to use and interpret, making it suitable for beginners and experienced traders alike.
- Works well in various timeframes, allowing for its use in both short-term and long-term trading strategies.
- Can provide multiple trading signals, including trend reversals and entry points.
- Cons: 😔
- May generate false signals in range-bound or flat markets.
- MACD signals can sometimes lag behind price action, resulting in delayed entries or exits.
- Reliability of signals may vary based on chosen settings and market conditions.
MACD Indicator: Key Features and Usage 📈
|Trend Identification||Use MACD to confirm the direction of the trend by observing the position of the EMA12 and EMA26 lines relative to the zero line.|
|Trade Entry Points||Look for crossovers between the EMA12 and EMA26 lines and their relationship with the zero line to identify potential trade entry points.|
|Momentum||Analyze the distance between the two moving average lines to gauge the strength of the price momentum.|
|Divergence||Monitor for MACD divergence, which may signal a potential trend reversal or weakening of the current trend.|
Is MACD reliable?
MACD is a commonly used indicator. For good reason. It gives numerous signals when the histogram crosses the central line, when the signal line crosses the MACD line or when there are divergences. Based on selected signals it is easy to define simple rules for a MACD-based strategy.
Common Questions About MACD Indicator 🤔
- Q: How can I avoid false signals from the MACD indicator?
- A: To reduce the number of false signals, consider using MACD in conjunction with other technical indicators and analysis tools, and practice good risk management.
- Q: Can MACD be used for both short-term and long-term trading?
- A: Yes, MACD is versatile and can be used effectively in various timeframes, making it suitable for different trading strategies.
- Q: Are the default MACD settings suitable for all markets and assets?
- A: While the default settings (12, 26, 9) are widely recommended, you may need to adjust these settings based on the specific market conditions and assets you are trading.
- Q: Can I use MACD as a standalone trading strategy?
- A: Relying solely on MACD is not recommended. Combining MACD with other indicators and analysis tools can help improve the accuracy of your trading signals.
- Q: Is the MACD indicator suitable for beginners?
- A: Yes, the MACD indicator is relatively simple to understand and use, making it a good choice for traders who are just starting out.
GENERAL RISK WARNING
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