MACD Every Trader Should Know: From Basics to Professional Trading

Why MACD is an Indicator Traders Must Learn

In the trading world, technical analysts seek tools that can help make accurate decisions. One of them is MACD, which stands for Moving Average Convergence Divergence. This indicator is special because it can perform two functions simultaneously: indicating trend direction and measuring its strength.

MACD was developed by Gerald Appel in the late 1970s and remains one of the most popular choices among professional traders worldwide. The reason is that it provides clear signals and can be applied to various market situations.

MACD Structure: Three Main Components

Currently, MACD consists of three main parts:

1. Main MACD Line

The MACD line is derived from the difference between the short-term EMA (12 days) and the long-term EMA (26 days)

Brief meaning:

• MACD > 0 (above the Central Line): short-term average price is higher than long-term → Uptrend
• MACD < 0 (below the Central Line): short-term average price is lower than long-term → Downtrend

Additionally, the slope of the MACD line can be observed. If the slope increases (more positive or more negative), it indicates a strengthening trend. Conversely, decreasing slope suggests weakening momentum.

2. Signal Line: Confirming MACD Behavior

The Signal Line is an EMA(9) of the MACD value itself. It acts as a reference line that helps traders detect changes quickly.

Reading values:

• When MACD > Signal Line and MACD > 0 → Bullish MACD signal confirmed
• When MACD < Signal Line and MACD < 0 → Bearish MACD signal confirmed

The Signal Line does not always have to be EMA(9); traders can adjust it to EMA(5) or EMA(7) based on personal experimentation.

3. MACD Histogram: A Clear Visual Indicator

The histogram is calculated as: MACD – Signal Line

It helps visualize the gap between MACD and the Signal Line:

• Histogram > 0: MACD rising → Strong bullish trend (more positive, stronger)
• Histogram < 0: MACD falling → Strong bearish trend (more negative, stronger)
• Histogram = 0: Critical point → MACD crossing Signal Line and trend reversal point

Why EMA is Used Instead of SMA in MACD

Choosing Exponential Moving Average (EMA) over Simple Moving Average (SMA) is no coincidence.

EMA gives more weight to recent price data, making it more responsive to price changes than SMA, which is better suited for tracking time series data like market prices. Additionally, EMA provides clearer and faster signals, which are crucial for traders who need to enter and exit positions promptly.

Real Example: Calculating MACD from USDCHF Data

To illustrate clearly, consider USDCHF data from 22/05/2566 to 21/07/2566:

Calculation formulas:

• EMA(12) = (P × k) + (Previous EMA × (1 – k)(
• EMA)26) = (P × k) + (Previous EMA × (1 – k))
• Signal Line EMA(9( = )MACD × k) + (Previous EMA × (1 – k)) where k = 2 / ((n+1))

From actual data, plotting the graph shows:

• Between 22/05-30/06, MACD stays below 0, indicating a strong downtrend.
• From 01/06 onward, MACD begins crossing above the Central Line → trend reversal signal.
• The histogram gradually shifts from negative to positive, confirming strengthening bullish momentum.

What MACD Tells Traders

( 1. Trend Identification(

Basic principle: If prices are rising, the short-term EMA will be higher than the long-term EMA.

Three main scenarios:

• Uptrend: MACD > 0
• Downtrend: MACD < 0
• Critical point: MACD = 0 )price is changing trend)

( 2. Measuring Momentum and Strength

The acceleration of the MACD line indicates how strong the trend is:

• Strong Uptrend: MACD positive and increasing )MACD line above Central Line with rising slope###
• Strong Downtrend: MACD negative and decreasing (MACD line below Central Line with falling slope)
• Weak Uptrend: MACD positive but relatively small and with decreasing slope
• Weak Downtrend: MACD negative but relatively small and with decreasing slope

( 3. Detecting Divergence: Reversal Signals

MACD Bearish Divergence )Weakening Uptrend###:

• Price makes new highs
• MACD does not make new highs (MACD positive value lower than previous peak)
• Signal: Uptrend losing momentum → possible reversal

MACD Bullish Divergence (Weakening Downtrend):

• Price makes new lows
• MACD does not make new lows ###MACD negative value higher than previous trough(
• Signal: Downtrend losing momentum → possible reversal

Trading Strategies Using MACD: Three Basic Methods

) Method 1: Zero-Cross Strategy (Signals from Central Line)

Principle: Follow points where MACD crosses the Central Line

Buy Signal:

• MACD below Central Line (MACD < 0) crosses upward to positive
• Indicates trend changing from downtrend to uptrend

Sell Signal:

• MACD above Central Line (MACD > 0) crosses downward to negative
• Indicates trend changing from uptrend to downtrend

Disadvantage: Signals are delayed because new trends often start before MACD crosses the Central Line.

Method 2: MACD Crossover Strategy (with Signal Line)

Principle: Observe the crossover between MACD and Signal Line, which is faster than Zero-Cross

Buy Signal:

• MACD crosses Signal Line upward, even if MACD is still negative
• Indicates weakening negative momentum and potential trend reversal
• Confirmed when Histogram moves from negative to zero

Sell Signal:

• MACD crosses Signal Line downward, even if MACD is still positive
• Indicates weakening positive momentum and potential reversal

Disadvantage: In ranging markets, signals can whipaw frequently.

( Method 3: MACD Divergence Strategy )Detecting Conflicts(

Principle: Use divergence as a warning of trend weakening and possible reversal

Bullish Divergence )Uptrend Weakening###:

• Price makes lower lows
• MACD does not make lower lows (MACD value higher than previous low)
• When MACD crosses above the Central Line = buy signal

Bearish Divergence ###Downtrend Weakening(:

• Price makes higher highs
• MACD does not make higher highs )MACD value lower than previous high(
• When MACD crosses below the Central Line = sell signal

Disadvantage: Divergence occurs infrequently but may take days before the market reverses.

Combining MACD with Other Tools for Greater Accuracy

MACD has weaknesses: it is a lagging indicator that signals late. Recent news can also cause false signals. Therefore, combining it with other tools is the best approach.

) MACD + RSI: Strength Confirmation

Benefit: RSI is a leading indicator that detects overbought/oversold conditions, while MACD confirms trend direction.

Strategy:

• Use RSI < 30 (oversold) as a warning
• Wait for MACD to cross above the Central Line = buy entry
• Conversely, RSI > 70 (overbought) + MACD crossing down = sell

( MACD + Bollinger Bands: Catching Strong Breakouts

Benefit: BB indicates volatility; contraction of Bollinger Bands + MACD trend change signals a strong breakout.

Strategy:

• Observe BB contraction → low volatility → prepare for breakout
• Price moves outside BB bands
• Confirm with MACD crossing the Central Line in the breakout direction

) MACD + Williams %R: Precision in Extremes

Benefit: Williams %R detects overbought ###0 to -20( and oversold )-100 to -80( conditions clearly.

Strategy:

• Williams %R enters oversold → price breaks extreme
• MACD crosses above the Central Line = buy
• Conversely, Williams %R overbought + MACD crossing down = sell

) MACD + Price Patterns: Confident Breakout Trading

Benefit: Patterns like Triangle, Double Top/Bottom, Head & Shoulders indicate price targets, and MACD confirms momentum.

Strategy:

• Identify pattern ###e.g., Symmetrical Triangle###
• Wait for price to break out of the pattern
• Confirm with MACD crossing the Central Line in the breakout direction
• Or histogram changes sign along with breakout

Limitations of MACD Traders Should Know

1. It is a Lagging Indicator: MACD signals after the trend has already started

   • Zero-Cross is the slowest
   • MACD Crossover is moderate
   • Divergence is faster but still lagging

2. False Signals in Ranging Markets: When prices fluctuate sideways, MACD whipsaws often occur.

3. Divergence is Rare and Time-consuming: When divergence appears, you must wait for the market to truly reverse.

Solutions:

• Do not rely solely on MACD
• Combine with trend confirmation tools
• Use support/resistance levels to assess risk/reward
• Experiment with different timeframes and adjust Fast/Slow/Signal parameters to suit your trading style

Setting Up MACD on Your Platform: Easier Than You Think

If trading with Mitrade, setting up MACD involves:

1. Add Indicator: Click “Add Indicators,” find MACD, and select it

2. MACD appears below the chart as a separate window

3. Adjust Settings: Click Settings to open Input panel

   • FastLength: set short EMA (default 12)
   • SlowLength: set long EMA (default 26)
   • SignalLength: set Signal Line ###default 9(

4. Test different values: customize according to your trading style and timeframe

With a free Demo account of $50,000, traders can experiment with MACD combined with various systems to find the best settings for themselves.

Summary: MACD Can Boost Success When Used Correctly

MACD is a powerful indicator for traders wanting to follow trends. However, success does not come from using a single tool.

Key points:

• Understand what MACD shows: trend vs. momentum
• Practice recognizing three main signals: Zero-Cross, Crossover, Divergence
• Combine with other tools for confirmation
• Test on demo accounts before live trading
• Adjust MACD parameters to fit your timeframe and risk tolerance

By deeply understanding MACD and practicing consistently, traders can develop a robust trading system that generates steady profits over the long term.