MACD default settings
- Thread starter traderkay
- Start date
as always, you've to apply the proper analysis tool the appropriate market. Not every stock has made 50% move before MACD turns.
MACD has been developped as a mediumterm, trendfollowing system.
The default settings work well for a variety of markets and stocks -
But MACD crossover Signals are simply to slow for highly volatile issues.
In case you want to apply MACD on highly volatily issues, you'd better trade it's histogramm signals than it's crossovers.
The MACD histogram displays the differences between the MACD and it's trigger line ( i.e the 9 period MA in def. setting ) in form of bars.
The lenght of the bar is equivalent to the difference between MACD + it's triggerline. Bars above the 0 centerline indicate, that MACD is above zero and vice versa.
One can trade 2 types of signals with the histogram :
1. Crossovers through the centerline ( slower )
2. Reversals in bars ( faster ) = not necessarily identical with a crossover of the MACD and it's triggerline
The rules are plain and simple :
MACD Hist. above 0 :
Buy when last bar is higher than previous bar
Sell when last bar is lower than previous bar.
MACD Hist below 0:
Buy when last bar is shorter than previous bar ( rise towards the zero line )
Sell when last bar is longer than previous bar ( rise away from 0 line )
For trading a reversal, a trader waits until the histogram built a top ( below or above centerline ) and starts to retreat in the opposite direction.
As an example, have a view to this chart of LLTC, certainly one of the higher volatile stocks
http://stockcharts.com/def/servlet/SC.web?c=LLTC
Here you can see the MACD in def. settings and it's historgam.
When you compare now, how the Histogram bars react to the stocks price movement, it will become clear, how to trade these signals.
Tinkering arround with different settings is not really adding value, but there are some traders who suggest to use i.e.
5 / 38 / 7 periods settings - but then again, these settings may not work for a number of other stocks.
A better way to apply MACD is to use it in conjunction with other, faster indicators.
Since the MACD reacts slowly to very fast price changes, one should either use the histogramm - which is definitely fast aur apply i.e. an 8,3,3 or 14,3,3, Stochastic in addition to MACD.
Elder's triple screen system looks i.e. for a weekly MACD to determine the trend and a daily Stoch or RSI to determine entry signals - which are only taken in the direction of the weekly trend.
Hope this helped a bit
MACD has been developped as a mediumterm, trendfollowing system.
The default settings work well for a variety of markets and stocks -
But MACD crossover Signals are simply to slow for highly volatile issues.
In case you want to apply MACD on highly volatily issues, you'd better trade it's histogramm signals than it's crossovers.
The MACD histogram displays the differences between the MACD and it's trigger line ( i.e the 9 period MA in def. setting ) in form of bars.
The lenght of the bar is equivalent to the difference between MACD + it's triggerline. Bars above the 0 centerline indicate, that MACD is above zero and vice versa.
One can trade 2 types of signals with the histogram :
1. Crossovers through the centerline ( slower )
2. Reversals in bars ( faster ) = not necessarily identical with a crossover of the MACD and it's triggerline
The rules are plain and simple :
MACD Hist. above 0 :
Buy when last bar is higher than previous bar
Sell when last bar is lower than previous bar.
MACD Hist below 0:
Buy when last bar is shorter than previous bar ( rise towards the zero line )
Sell when last bar is longer than previous bar ( rise away from 0 line )
For trading a reversal, a trader waits until the histogram built a top ( below or above centerline ) and starts to retreat in the opposite direction.
As an example, have a view to this chart of LLTC, certainly one of the higher volatile stocks
http://stockcharts.com/def/servlet/SC.web?c=LLTC
Here you can see the MACD in def. settings and it's historgam.
When you compare now, how the Histogram bars react to the stocks price movement, it will become clear, how to trade these signals.
Tinkering arround with different settings is not really adding value, but there are some traders who suggest to use i.e.
5 / 38 / 7 periods settings - but then again, these settings may not work for a number of other stocks.
A better way to apply MACD is to use it in conjunction with other, faster indicators.
Since the MACD reacts slowly to very fast price changes, one should either use the histogramm - which is definitely fast aur apply i.e. an 8,3,3 or 14,3,3, Stochastic in addition to MACD.
Elder's triple screen system looks i.e. for a weekly MACD to determine the trend and a daily Stoch or RSI to determine entry signals - which are only taken in the direction of the weekly trend.
Hope this helped a bit
Traderkay,
Check out SMACDX under Yahoo groups. Http://groups.yahoo.com
Their a group of traders working on a MACD crossover system. They use 4,11,6 for their settings on a 2 and 5 minute chart.
Bob
Check out SMACDX under Yahoo groups. Http://groups.yahoo.com
Their a group of traders working on a MACD crossover system. They use 4,11,6 for their settings on a 2 and 5 minute chart.
Bob
Hm. Doesn't the histogram display the difference between the 12MA and 26MA? Then the 9MA is applied to that difference to produce signals.
Also using the 12MA and 26MA crossovers is not really using MACD per say I think. It's just two parameters for a garden variety MAcrossover system. My question was primarily focused on using the histogram rather than raw MA crossovers.
I agree with Traderkay the default settings just plain suck, but I would add the qualifier, for swing trading on a few days basis. They may well be appropriate for large, stodgy, slowly-moving blue chips.
My preferred setting on a daily chart is 5,13,6. However, it really does depend on the characteristics of the individual stock and the typical lengths of the cycles between short-term tops and bottoms. Therefore I sometimes try to "tune" the MACD settings to the characteristics of the stock.
I do not trade on the basis of MACD crossovers, but I do like to see MACD at or near overbought or oversold levels or turning up or down when I make my decisions on the basis of price and volume action.
My preferred setting on a daily chart is 5,13,6. However, it really does depend on the characteristics of the individual stock and the typical lengths of the cycles between short-term tops and bottoms. Therefore I sometimes try to "tune" the MACD settings to the characteristics of the stock.
I do not trade on the basis of MACD crossovers, but I do like to see MACD at or near overbought or oversold levels or turning up or down when I make my decisions on the basis of price and volume action.
Privateer,
Have you ever studied this simple histogram measuring approach on an intraday chart? I would imagine it would be rather scizophrenic. Also, do you add any more weight to the comparison of the histogram bar length to the preceding bar when the bars ave above vs below the zero line?
Have you ever studied this simple histogram measuring approach on an intraday chart? I would imagine it would be rather scizophrenic. Also, do you add any more weight to the comparison of the histogram bar length to the preceding bar when the bars ave above vs below the zero line?
