Many traders lack clear decryption of the language of the markets, lost in a sea of many indicators. MACD is one of the most powerful tools in the hands of a trader, but confusion and missed opportunities only arise when he misunderstands the components with which he uses it on real-time trading. More than that, the most vital aspect that causes any serious loss during trading is the strategy followed by most traders to understand the correct time for entry and exit.
MacD is indeed an even mixture of moving averages, touted as a way of measuring momentum and possible reversals in price. However, depending on the standard MACD settings alone will provide little more than mediocre results. Without knowing the specifics of the MACD, along with its histogram and color coding, such efficiency will be drastically enhanced.
In this article, we’ll talk of a new, innovative MACD trading hack that uses the indicator in a creative way and exploits its intrinsic features. This approach bypasses the main problem of scalping – straightforward and efficient, to help traders receive good returns by recognizing powerful trends and proper points for entering and leaving the market.
Knowledge of MACD Indicator
What is MACD?
MACD stands for Moving Average Convergence Divergence. It is basically composed of:
- MACD Line: The short-term difference of the 12-period and 26-period exponential moving averages.
- Signal Line: A 9-period EMA of the MACD line, making it the smoothed version of its movements.
- Histogram: A graphical representation that displays the difference between the MACD line and the Signal line. This can give visual cues about the momentum change.
The MACD is essentially a momentum indicator, or one that shows how fast the faster moving average (12-period) is moving away from the slower moving average (26-period). This characteristic makes it invaluable for marking the moment when the momentum within the market starts changing.
Simplification of MACD Readings
To make good use of MACD, one must refer to the histogram. The histogram graphically presents the interaction between the MACD line and the Signal line. As long as the histogram is:
- Above the Zero Line: The MACD line is higher than the Signal line. This means that there is bullish momentum.
- Below the Zero Line: Here, the MACD line is lower than the Signal line, displaying bearish momentum.
- Histogram Color: A positive histogram is green, which means acceleration – the blue line is away from the red line. On the contrary, this is explained by a negative histogram, which is red.
This basic form of color coding has allowed even average traders to measure whether the market is positive or negative without rendering through difficult multiplication.
The MACD Trading Hack for Scalping
Step 1: Determine the Trend
While the MACD line itself is not a measure of direction that helps to identify a trend, it does provide insight into momentum that can be aligned with price action. Here is how you should go about determining the bullish trend:
- Overall Trend: A Bullish Trend
- The MACD line (blue) must always be above the Signal line (red), and there’s a green histogram that gives a strong indication of it being in strength.
- Bearish Trend: If the MACD line is below the Signal line with a red histogram, then it means that there is a bearish trend.
Step 2: Trends are Not All the Same
Although all trends move in one direction, not all trends are alike. A good trend refers to a moving trend with intense price movement and high volatility. In MACD, strong trends are indicated as follows:
- Dark Green Histograms: It represents strong bullish momentum.
- Dark Red Histograms: It shows that there exists strong bearish momentum.
Step 3: Timing Your Entry
One of the hardest things about trading is when to enter and exit. That’s where the MACD trading hack is better.
- Waiting for Dark Bars: Wait for dark green or dark red bars in the histogram. This indicates high strength on the side you want to go.
- Do Not Open a Trade on Lighter Histogram Bars: Avoid opening the trade when the histogram bars are lighter. This may be the trend is weakening, which often means waiting a little longer for confirmation.
- Further Indicators: You may include the market timing indicator for the better evaluation of your timing. It will be able to find you better entry spots for finer price movement and volume information.
Examples of MACD Scalping in Practice
Let’s see how to apply this strategy in practice:
Example 1: Bullish Scenario
You are tracking the EUR/USD pair.
- Confirmation of a Trend: You can see that the MACD line is always above the Signal line; dark green histogram bars are visible.
- Entry Point: Once the histogram under your confirmation of the bullish strength, you become bullish and enter a long position.
Example 2: Bearish Scenario
Now let’s see how to apply this strategy in a bearish scenario with Apple Inc. (AAPL):
- Trend Confirmation: The MACD line is below the Signal line, and dark red histogram bars are bearing signs of strong bearish momentum.
- Entry Point: You enter a short position once you see the histogram confirming acceleration of the bearish trend.
Risk Management: Protecting Your Trades
Even the best of plans should always include sound risk management. Try these:
- Stop-Loss Orders: Always set stop-loss levels at levels which are just higher or lower than recent price highs or lows to avoid getting caught out by a quick reversal of market trends.
- Take Profit Levels: Set profit levels at significant support or resistance points to make sure that you make money from the trades you take.
Conclusion
Understanding the nuances of the MACD trading scam allows the trader to move his approach from scalping. The momentum change indicates possible shifting of trend, which may be used as an important leading signal – making the usage of the histogram for entry a lot more efficient and even lucrative.
The main point here is to be disciplined in the way you trade. Always trade with the trend and confirm strength with dark histogram bars. This will make trading life quite a lot easier for you and boost your level of confidence while making trades, likely to be profitable.
Some additional resources, including webinars or market timing indicators, may be needed to prepare individuals who plan to dive head first into full-fledged market timing and more complex strategies. In addition, with sufficient practice and dedication, this MACD trading hack can become the trader’s inevitable go-to tool in his toolkit.
