MACD Trading Indicator

In efforts to lead into a series of posts detailing the MarketGodPro Indicator, and the components involved with the MarketGod Series, we will be covering the fundamental components involved with the decision making you see on the indicator itself.

In efforts to lead into a series of posts detailing the MarketGodPro Indicator, and the components involved with the MarketGod Series, we will be covering the fundamental components involved with the decision making you see on the indicator itself. Today, we cover one of several components in this series, the MACD.

MACD Background

Moving Average Convergence/Divergence (MACD) is a trend-following oscillator technique which uses 2 exponential moving averages. It is one of the most used indicators and was developed by Gerald Appel in the late 1970’s. As all momentum indicators, the MACD gives an idea about the general direction of an asset’s price.

Calculation and Application

The MACD Indicator, as shown on https://www.tradingview.com

The MACD line is the result of subtracting the long term 26-period Exponential Moving Average (EMA) from the short term 12-period EMA. An additional line called the “signal line” is plotted on the top of the MACD line. The “signal line” is nothing but a 9-period EMA of the MACD and serves as a trigger for buy and sell signals.

Traders may buy the asset whenever the MACD crosses above its signal line and sell the asset whenever the MACD crosses below its signal line. The difference between the MACD line and the signal line is usually shown through bar histograms, where positive values indicate an upward trend, while negative values indicate a downward trend. The size of the bar histogram which reflects the distance between the MACD line and the signal line gives an indication about the velocity of the movement.

Crossovers of the centerline of the histogram indicate buy and sell signals. Crossovers towards the positive side of the histogram indicate a buy signal while a crossover towards the negative side indicates a sell signal.

One of the most popular ways to use the MACD histogram is to trade divergence. However, the divergence trade is not always very accurate; in fact, its success rate is below 50%. In order to explore a more logical way of trading the MACD divergence we look at using the MACD histogram for trade entry and trade exit signals (instead of focusing on entry only), this gives traders a unique edge to take advantage of such a strategy.

The Calculation of the MACD in Pine Script, as seen in the MGv6 from the MarketGodPro Trading Series. Note that while the default length of the Slow-Moving-Average is 26, we have adjusted to 20.

MACD in MarketGod

The MACD Indicator has a core component in the MarketGodPro Trading Series and is relatively important in the success of the tool. While we still work to remove more chop during periods of sideways trading, MACD does indeed eliminate some of the potential chop that we experienced when building. While some consider it a lagging indicator, we use this to our advantage by having it add needed confirmation to a given direction in price. MACD became a component of the tool at the start of the v5 updates and continues to add value in our tool.