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How To Use the Slower Settings Of MACD Indicator?

MACD is a good indicator, specially for the new traders who have not built their discipline yet. Among the lagging indicators, I like MACD more than the others. MACD is a good indicators specially for those who suffer from entering and exiting too early.

MACD forms some special and strong trade setups. MACD Divergence and Convergence are two of the strong chart patterns that MACD forms. They are very easy to locate on the charts.

I use the MACD histogram. The MACD traditional indicator has two parts. The first part consists of two lines. One of the lines is the MACD indicator itself and the other line is the moving average of this indicator. The second part is the MACD Histogram which is calculated based on the distance of the two lines. Using the histogram makes the indicator simpler, and it still reflects the signals we need to trade. So I remove the lines and I only keep the histogram. The below picture shows the traditional MACD:

Traditional MACD

The MACD default settings is 12, 26, 9. However, to remove the noise you can set it to 24, 52, 9 to make it even slower. The below screenshots are all with this slower settings. The 24, 52, 9  makes the MACD slower and it removes most of the noise. In spite of this, none of trade setups will be missed, and our entry will not be delayed at all. This is an amazing feature that MACD has.

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MACD Divergence

MACD Divergence forms when the price has been going up for a long time and has formed an uptrend. When the price still keeps on going up and forms higher highs but MACD changes its direction, goes down and forms lower highs, a pattern forms on the chart which is called MACD Divergence. Of course there are some other indicators like RSI that also form divergence and convergence patterns, but MACD divergence and convergence are sharper and stronger and more famous among the traders.

MACD Divergence and Convergence are reversal chart patterns. When they form on the charts, it is a signal that the price can reverse very soon, and, in most cases it really does. But there are some cases that the price follows the same direction even after a divergence or convergence.

The below chart shows a MACD Divergence on EUR/USD weekly chart. To have a better picture from the price highs and lows, it is recommended to have Bollinger Bands on the charts too. As you see on the below chart, the price has been going up and it has formed a higher high, but at the same time MACD histogram starts going down and forms a lower high while the price goes up to form the higher high. This is called divergence:

MACD Divergence

As you see on the above chart, when the MACD’s lower high and the price’s higher high formed, a strong candlestick signal with a strong Bollinger Bands breakout also formed by one of the candlesticks. The red arrow shows this candlestick which has formed a very strong Bearish Engulfing Pattern:

Short trade setup after forming of a MACD Divergence

Although the candlestick pattern was so strong by itself, the MACD Divergence added a big confirmation to it.

Like all the other trade setups and signals, not all of the MACD Divergence setups work as strong as the above example. The below screenshot shows another MACD Divergence (at the left side of the below chart) that formed before the one you saw above. As you see, the MACD Divergence that formed at the left, did not make the price go down as strong as the MACD Divergence that formed at the right:

The market didn't follow the MACD Divergence.

You can have your stop loss always there and move it to breakeven when the price moves accordingly, so that if the price turns around suddenly you will not get out with loss:

Having a proper stop loss when MACD Divergence forms.

MACD Convergence

MACD Convergence forms on the downtrends while the price keeps on going down and forms “lower lows”, but at the same time MACD histogram goes up and forms “higher lows”. Like the previous pattern, MACD Convergence is also a reversal pattern. Please note where the entry and stop loss levels are:

MACD Convergence

If you check the EUR/USD daily time frame, you can locate several MACD Divergence and Convergence patterns that most of them worked very strongly. Some traders only trade the MACD Divergence and Convergence and they do not care about the other trade setups because they believe that MACD Divergence and Convergence are the strongest trade setups.

Please note that MACD Divergence and Convergence are very strong and reliable when formed on the longer time frames like daily and weekly. The shorter the time frame, the unreliable the MACD Divergence and Convergence patterns.

In addition to MACD Divergence and Convergence, there are some more ways to use this indicator. You can have MACD on the chart as a confirmation in trading strategy that you use. For example, if you use the candlestick patterns to trade, but you want to have more confirmation to filter out more false signals and take less risk, you can use MACD.

The same strong Bearish Engulfing Pattern I described above, could be confirmed by the MACD bars too (without paying any attention to the MACD Divergence). The Bearish Engulfing Pattern formed while we already had a divergence there. However, it could form without a divergence. Divergence and convergence are the patterns that don’t form on the charts very frequently, but candlestick patterns are more frequent. Still you can use MACD to confirm the candlestick patterns you locate while there is no divergence or convergence. MACD keeps you from making mistakes and taking the weak patterns and signals. First, I show you how MACD confirmed the EUR/USD strong Bearish Engulfing Pattern I already showed you above. Then I show you some examples that MACD could prevent us from taking the false and weak patterns.

The below screenshot shows how MACD confirmed the Bearish Engulfing Pattern. As you see when the engulfing candlestick closed and the next candlestick opened, the MACD related bar and also the previous bar were getting smaller which means the market was getting bearish and the price was ready to go down, so that it was OK to take the bearish signal:

Confirmation of the Bearish Engulfing Pattern by the MACD Bars

The below chart shows you too many weak candlestick patterns that you might take if you did not have the MACD on the chart. But with having the MACD, you could easily skip those weak and false setups.

1. Candlestick #1 shows a Bullish Engulfing Pattern (or a piercing line) that also has broken out of Bollinger Lower Band. However, it is not a strong signal and it had to be skipped as a reversal pattern. Novice traders usually jump in as soon as such a pattern forms on the charts. But experienced traders understand that such setups are weak and unreliable. However, when new traders have MACD on their charts (with 24, 52, 9 settings which is slower), they can easily consult the indicator and know whether the candlestick pattern is strong enough or not.

As you see, a Bullish Engulfing Pattern was formed, but MACD bars (bar #2 and the previous few bars) were going down which meant that the market was still bearish and it was not good to go long.

2. Candlestick #3 and MACD bar #4 are also like #1 and #2 that had to be skipped.

3. Candlestick #5 and MACD bar #6 are also like #1, #2, #3 and #4 that had to be skipped.

4. Candlestick #7 formed a Bearish Engulfing Pattern that somehow could be known as Dark Cloud Cover too. However, as you see, the MACD bar #8 and several previous bars have been going up strongly which means the market was still bullish and it was wrong to go short.

5. Candlestick #9 has formed a continuation signal above Bollinger Middle Band. At the same time, MACD bar #10 and the bars before and after, were going up. It means the market was bullish and it was OK to go long. This was the only good bullish candlestick pattern that was confirmed by MACD.

6. Candlesticks #11 formed a strong Bollinger Upper Band breakout that looked like a good reversal signal, but MACD bar #12 and the bars after that, were going up which means the market was strongly bullish and it was wrong to go short.

7. Candlesticks #13 and MACD bar #14 also have the same situation as the candlesticks #11 and bar #12.

Filtering out the weak candlesticks signals by MACD bars

Do you see how MACD can prevent us from entering the market while the reversal signal is not strong enough and the trend is still strong?

That is why I explained at the beginning of this article that MACD is a great indicator for the new traders, because they really don’t know what the best time is to get in the markets. They jump in as soon as they see a pattern that can be false or too weak.

I can show you hundreds of examples like this, both from the patterns and signals that MACD confirmed and they really worked, and from the weak patterns and signals that MACD did not confirm, and so the related patterns and signals had not been followed by the price reversal.

MACD helps you build your disciple, because you see some signals on the charts, but you don’t enter because MACD says “no”, whereas when MACD is not on the chart, you enter and you lose.

This is how you can use MACD. Add this indicator to a chart, set it to 24, 52, 9, and try to locate the trade setups like the ones I showed you above. See how MACD confirms some trade setups and rejected the others. Then answer the below questions and decide:

  1. Can MACD help you make more money?
  2. Can MACD help you lose less money?
  3. Can MACD help you have lower risk and higher reward?
  4. If you have been losing so far, do you think that MACD can help you become profitable from now on?
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62 thoughts on “How To Use the Slower Settings Of MACD Indicator?
  1. Jan says:

    Have beter understanding of MACD now. Thank You

  2. Harvey says:

    Great article, Chris. I have not tried changing the default setting, but I will certainly try yours. MACD is my favourite oscillator, ie I am more consistent with it on my chart than any other. I have the MACD and Signal lines on my chart as it gives a visual indication of the current sentiment (bullish/bearish) of traders.

    Keep it up and well done LuckScout

  3. Joshua says:

    Please who is the Chris’s buddy that wrote this article? I love to address individual and pay respect for the resource we are tapping from you. Dr Chris as I address you, thank you for the forum to learn from you guys. Your words are just clear to understand all this technique. I have tried Salmaan’s trading Technique, hope am right with the spelling. I have really learnt a lot. Even pyscological I even watched a film about Lord Budda. The inner calmness. As in my life is different. This course was more of awakening to me. God bless you. MACD sounds great. I will try your concepts out. Thanks.

  4. Slothinker says:

    As a technical writer I particular appreciate the clarity with which concepts/tools like MACD are explained. Until reading Chris’ articles I had no clue what MACD and candlesticks were about and I’ve attended several seminars that discussed candlesticks.

  5. Sutivserv says:

    Thanks for enlightening us, but can you explain the advantages of changing MACD settings.

  6. Asiri says:

    MACD can help us to decide right time to enter and find out weak and strong trade set ups….. MACD Divergence and Convergence are amazing…

    thanks Chris….

  7. Omar says:

    Thank you Chris for the excellent article. I used to lose my money on my mobile phone I installed. I Metatrader4 for Android. Usually I have a lot of red numbers ( loosing positions ).

    I tried your thoughts and Ideas in trading on Friday 10-Oct-2014 for the first time. I got two benifits from these trading
    1. for the first time I feel a good confidence in the positions I opened
    2. It is the first time to see 10 or 15 open positions all of them with blue numbers ( profiting positions ).
    I hope than I can thank you as much as I can but I can’t find more stronger words to thank you.
    only I have one question
    I know that the recommedation to start a buy position or to take sell position is when crossing the zero line . But matching the MACD histogram with the candlestick shows that we can take a buy signal from the early point MACD start going down or we can take the buy position earlier from the point MACD start moving up.

    can you correct me If I am making wrong conclusions ? your opinion please

    Regards
    Omar

    • Chris says:

      Hi Omar,

      Thank you for your comment, and glad to hear you are getting good results now. Also, welcome to LuckScout 🙂

      Regarding your question, you are right. If you trade the candlestick patterns, when the pattern is formed MACD still has not crossed the zero level, because candlestick patterns are early and real time signals, whereas MACD is too lagging. If you trade the strong candlestick patterns, and you want to confirm them with MACD, then you can not wait for MACD to break the zero level, and as you said you have to take it when MACD bars have already started going up/down.

      What I want to tell you now is that if you trade the candlestick patterns, and you learn how to pick the strongest ones, then you don’t have to confirm them with MACD. A strong candlestick pattern doesn’t have to be confirmed by anything.

      • Omar says:

        To be honest with you I can’t determine the strong candles or the strong candlestick pattern. I am taking the benefit of Heikin Ashi candlestick and confirm them by MACD. Next week I may give feedback result about this strategy since I am beginner in trading and technical analysis.

        Another note from my side: your website is the most one I feel it has good explanation with the most benefit for me.
        Regards

  8. Asiri says:

    HI Chris… can I know what the lowest volume amount in real account?
    in my demo AC lowest is 0.10. can’t we trade with 0.01 in demo?

    • Chris says:

      Hi Asiri,

      The min lot size an ECN/STP supports is 0.1 lot.

      In demo account however, they support 0.01 too, but sometimes they try to offer the demo account exactly as the live account, so that they don’t support 0.01 lot in demo account too.

  9. Venky says:

    Hi Chris,

    I feel the articles in LuckScout.com are amazing for new traders like me. I am into stock trading. I see that the articles about candlestick signals, bollinger bands and MACD are primarily written for markets. I believe these articles hold good for stock markets as well and I wanted to confirm with you the same.

    Say for example, this article (Slower settings of MACD indicator) , does it works good for stock market as well. I am not experienced in market and I wanted to confirm with you. Thanks!

    Venky

    • Venky says:

      Hi Chris,

      Candlesticks, bollinger bands and MACD is all about numbers (ultimately depends on open, close, high and low prices). Hence, I believe it has to work for stock markets as well.

      But I am trying to understand the market psychology between and stock markets.

      Regards,
      Venky

    • Chris says:

      Hi Venky,

      Welcome to LuckScout 🙂

      The strategies we follow here can be applied to any markets, including stock market. Specially the candlesticks patterns is a great tool for stock trading. Slow MACD can be applied to stock market too. Just add it to the stocks you trade and check the back data.

  10. David says:

    Hi Chris,

    In the text you refer to using settings of 24,52,9 but all the chart examples seem to use 24,52,14. I presume the chart settings are the ones to use, is this correct?

    Many thnks.

    David

  11. David says:

    I beg to differ Chris, on my platform (Tradestation) it makes a huge difference to the outline of the histogram. On my platform,I’ve set the Fast Length to 24, the Slow length to 52, and the MACD length to 14 (or 9). How can I send you a screenshot comparing the 2 settings?

    • Chris says:

      On MT4 the last number is related to a simple moving average that we usually make it invisible because we only want to see the histogram on the chart. So it doesn’t matter to what number we set it.

      You can upload an screenshot to tinypic.com

  12. David says:

    Chris,

    I’ve had another look at this and I was trying to get my charts to look at the same as your screenshots, however, there was no similarity. However, when I look at a histogram of the MADC itself, as opposed to MACD Diff, it exactly matches your histogram. So, I’m a bit confused as you say in your text that you are using a histogram of the difference between the 2 lines.

    • Chris says:

      MACD histogram doesn’t change that much by the small differences that candlesticks have, because it is plotted based on the moving averages. If the candlesticks look different, then there is only one reason for that which is the open/close time difference.

  13. David says:

    To be honest Chris, I’m still a bit confused. My candlesticks look exactly the same as yours.

    To try to illustrate what I am talking about, I have attached 2 screenshots. The first one shows one of your EURUSD charts at the top and one of mine below which replicates it exactly. For the MACD histogram, I have used the MACD itself, not the MACD Difference.

    The second screenshot shows at the top my chart from the 1st image, and then below it the same chart but with the addition of the usual MACD with both lines and the histogram. The histogram is of course completely different to the first image.

    All I am trying to do is establish exactly what is is you are using as what you say in your text and what is shown in your charts are not the same thing.

    http://i57.tinypic.com/2jbjeih.png

    http://i57.tinypic.com/4sfokg.png

    Regards.

    David

  14. David says:

    Hi Chris,

    I’ve been having a play around looking at divergences. I haven’t cherry picked at all, just stuck a random chart up and picked out the 240 min and Daily divergences. Wait for the divergence, wait for the histogram to lose momentum on the timeframe that created the divergence and enter. All profitable as far as I can see. The Bollinger Band is based on the Daily even though it’s a 240 min chart.

    Not many of them but as you say, that’s probably a good thing as it teaches patience.

    http://i61.tinypic.com/drfeon.png

  15. Oliver says:

    Hello Chris,

    Thank you for your clear articles that explain MACD well.

    What do you mean when you say the slower MACD filters out the noise? What is the noise? Also, what do you mean when you say it makes the MACD slower?

    Thanks

    • Chris says:

      MACD default settings is 12, 26, 9. Slow MACD is 24, 52, 18. A moving average which is set to one, shows any up and down. But a moving average that is set to 10, takes the average of 10 movements. When ten movements become one, it means the noise is eliminated.

  16. Shalewa says:

    Thanks Chris for the article. Should one always move SL to breakeven when the price is moving toward the target in every trade as a matter of principle? I would really appreciate your response. Thanks.

    • Chris says:

      It is one of the ways that helps you to lower the risk. However, some traders don’t like it and prefer to leave the SL at its initial level.

  17. Sylvia says:

    Thank you
    I love MACD and MACD histogram
    I use it on many time frames to confirm before entering

  18. vinay P says:

    Thank you chris.

  19. farid hr says:

    Hi chris, thank you for this article. Very well explained and easy to understand.love it! 🙂

  20. Kelvin Dube says:

    very well explained chris macd can save as a strong confirmation

  21. titanium says:

    Hi Chris, you always say we should move the stop loss to breakeven when the chart is moving toward our target, but since we look the charts just 30 minutes at day, how can we always be in front of the screen, at the right time to move the stop loss? Thank you again. I’m learning so much from you.

    • Hi titanium,

      That is not the only thing I always say. In addition to that, I always say that you have to trade the daily, weekly and monthly time frames and forget about the shorter time frames, not to have to sit at the computer all day and night. Have you ever seen anywhere on this site that I recommend the traders to trade 30min chart?

  22. titanium says:

    Hi Chris, I think you’ve misunderstood me. I didn’t say you recommend to trade the 30 minutes charts (I know you don’t). I said you always say that, if we trade the longer timeframe, we can spend just 30 minutes at day checking the charts and taking the position, and then came back the next day. But since we don’t have to stay in front of the screen all day, how can we move the stop loss to breakeven at the right time? Or do you move the stop loss the next day, when you check the charts, without being worried to loss your profit? Thanks again.

    • Hi Titanium,

      Sorry if that is what you meant.

      Yes, you can move the stop loss next time you check the market, which is usually the next day after the daily candlestick close. Daily, weekly and monthly time frame are long enough to give you the chance to move the stop loss before it becomes too late.

  23. titanium says:

    That’s what I wanted to know. You always give me the right answer.Can I move the stop loss to breakeven when my target has reached the same size as my initial stop loss?

  24. titanium says:

    Another great answer. Thanks. I’m so grateful for your help.

  25. Muhammad Hassan` says:

    this is also helpfull for me…

  26. saeid t says:

    hi dear chris and thanks for useful articles
    i get a liitle confused about the last chart you show.
    for example the #13 candle stick is a reversal signal and the chart go down after that so we can short right there but you said because of macd bar #14 we do not do that while it goes down after #13 candle stick,so why we do not short there?

    • Saeid,

      We can go short when MACD bars are descending. When we should not go short when MACD bars are ascending and a sell signal forms by candlesticks.

  27. Tatenda Mukamba says:

    Hie Chris

    Thanks Chris for always simplifying things. You give us novice traders hope and courage to strive for the best. Your articles will make our dream of becoming a professional trader come true.

  28. Sunil Krishan says:

    Wonderful article..Amazing explain..Thanks a lot Chris.

  29. Adrian Skea says:

    Hi Chris,

    Firstly, thank you for this great Web page. My question is about the comment:

    3. Candlestick #5 and MACD bar #6 are also the same as #1, #2, #3 and #4

    I would have guessed that this was actually a valid strong signal: BB breakout, and MACA at 0. But you dismissed it. Was it because the bull candle was not long enough?

  30. Rico Steele says:

    OMG you are turning me into an awesome trader…. I payed to join a trading group on facebook but it was well worth it cause someone posted an LuckScout article and I came and got hooked on the site and found the best trading system in my opinion that is very easy for me to understand. Cannot thank you enough!

  31. Abdur Razique says:

    Hi Mr. Chris, I am pleased that there are some persons like you.

    I was frustrated by loosing n loosing, but finally I reached you.

    Sir, will you please let me know the perfect timeframe for intra day trading. And can I also use this stretagy on any currency pairs?

    Regards

  32. Reza Samimi says:

    MACD is Great … after this article I will try to focus on that more than before. thank you Chris.

  33. Uditha Millewa says:

    Hi Chris,

    I had a basic knowledge when i started my trading carrier. After blowing my real account 4 or 5 times i didn’t gave up. Now i am trading with my demo account. According to your practical strategy i think trading is much more interesting and important. I followed many sites and red many articles to improve my knowledge, Accidentally i found this site and i think i got in to the right track! Hope to get success with patience. Candles are my favorite. Try never to miss your great articles. Thank you Chris for sharing your knowledge without greed!

  34. Fidelio no2nd... says:

    Thanks Chris for this enlightening teaching.
    I just had a recent illustration: I identified two pairs with potential daily short setup AUDCAD and AUDJPY. Both showing regular bearish divergence on RSI. Now checking with MACD it is clear that MACD (with regular settings) crossed the signal line only on AUDJPY on 24Feb17. But not yet on AUDCAD where I had my S/L hit.
    Thanks again.

  35. Maurice Parchment says:

    Dear Mr. Chris/LuckScout Team,
    Can you kindly explain this?! I don’t usually have two MACD applied to the chat but I was testing the difference between the slow and fast setting of the MACD, in regards to the very informative articles recently posted.
    What a came across was little confusing to me. I know that the slower setting produce fewer and stronger signals.
    When you have a moment, please have a look at the most recent divergence that happened on this EURUSD daily chart and see if you can explain to me and new comers what took place. If you notice the slower macd setting followed the price where as the faster showed divergence. Here’s the link https://www.mql5.com/en/charts/6664509/eurusd-d1-tw-corp

    Thank you,

    Maurice

    • LuckScout says:

      Hi Maurice,

      Thank you too.

      The fast MACD says you can buy, the slower one says you should not buy. The slower one is used to form less trade setups.

  36. Maurice Parchment says:

    Thanks for the explanation Chris.
    Cheers 🙂

  37. Joe Powers says:

    Cool stuff. Thanks!