In this article, we developed one test, where we created one intraday profitable strategy, and we and then we varied the values of the MACD settings parameters in several combinations. We wanted to see what is the best MACD settings for intraday trading.
Moving average convergence/ divergence or more commonly referred to as MACD for short, moving average convergence/divergence is an indicator for trading, created by Gerald and used for various stock price technical analysis types. It was developed in the last period of the 70s.
MACD has been designed to help reveal the trend duration, momentum, direction, and strength of the stock price. The oscillator or the MACD indicator is a three-time series collection calculated with data from historical prices; it is normally the price of closing. The three series are the divergence series that is a difference between the average and signal series. The other two are the signal series and the average series.
The best MACD settings for intraday trading is default settings MACD parameters EMA 12, EMA 26, EMA 9 based on forex.in.rs research on M30 minute chart. The research was done on 9 MACD settings combinations.
Macd settings for day trading analyzed the standard setting for MACD, as the difference between the 12- and 26-period EMAs. Our research tried combinations for greater MACD sensitivity and tested a shorter short-term moving average and a longer long-term moving average. MACD(6,35,6) is more sensitive than MACD(12,26,9) and can be a better MACD setting for weekly charts. In day trading, when traders use M5 or M15, or M30 chart time frames, the best performance is obtained using standard MACD settings for day trading (12,26,9).
Signal Line Crossover
The signal line crossover of MACD shows that the acceleration direction is changing. The average velocity of the MACD line when it crosses zero indicates that the direction is being changed. You can read a review about the Two-line MACD indicator for mt4 and make a free download on our page: Download MACD Indicator with Two Lines for MT4.
How is the MACD Indicator Used for intraday trading or long term trading?
The tool is used to identify moving averages, which indicates a new trend if it is bearish or bullish. The main goal of trading is to find a new trend as that is where one will find the most money and have a piece of the pie.
MACD Chart
The MACD charts show three different numbers being used for the settings. The first number is for the periods, and it is used to calculate the faster-moving average.
The second number of periods is used for the slower moving average. Finally, the third number is for the number of bars, which would be used to calculate the moving average, which would be used to differentiate between the slower and faster moving averages.
Basic MACD settings
As an example, if one were to come across the default setting of the MACD parameters that are 12, 26, 9, these would be interpreted as:
Fast EMA period: The 12 previous bars are represented by 12 of the faster-moving average.
Slow EMA Period: The 26 previous bars are represented by 26 of the slower moving average.
Signal SMA period: The 9 previous bars are represented by 9.
Vertical lines would be plotted and are referred to as a histogram. When it comes to MACD lines, there is a misconception. The 2 lines that get drawn do not reflect the price moving averages but are the difference in the moving averages between the moving averages.
When a slower moving average is plotted, the original line would be smoothened. Further, this helps provide one with a much more accurate line. The histogram would plot the difference between the slow and fast-moving average.
The divergence is when one would notice the two moving averages moving separately. The histogram will start to get bigger since the faster-moving average would be moving away or diverging from the slower moving average.
The histogram would get smaller as the moving average start getting closer to one another. This is referred to as convergence since the faster-moving average would be getting closer or converging to the slower moving average. This is the entire process of the Moving Average Convergence / Divergence.
Now that you have understood what MACD does, it is time for you to know what it can exactly do for you.
MACD for Slow and Fast Moving Averages
As the fast line crosses under the slow line, a new downtrend would be identified. One would be able to notice that the histogram would disappear temporarily as the lines cross. It is due to the difference in the lines when the cross is zero.
Furthermore, when the downtrend starts, the histogram would get bigger as the fast line would diverge or move away from the slow line. This is an indication of a solid trend. Let’s have a look at the examples.
Let’s look at an example for better understanding.
Our MACD intraday settings using Expert Advisor tests
Indicators :
1) MACD with several settings
2) Channel (we used our indicator, but you can use any channel indicator, for example, Donchian channel).
3) Important level indicator. We have our indicator based on previous high and lows, but you can use Pivot points or Fib levels.
Rules :
We created several combinations and created BUY and SELL rules on 30 minutes chart :
BUY if we see bullish MACD cross or zero line cross AND price touch an important level AND the price is in a bullish channel. Stop loss is the last swing important level. Target at the next level.
SELL if we see a bearish MACD cross or zero line cross AND price touch an important level AND the price is in a bearish channel. Stop loss is the last swing important level. Target at the next level.
In the first test, we used 30 minutes chart and basic MACD settings. Then we repeated several tests with different combinations :
Important fact:
You can combine the moving average strategy with MACD. The best moving average crossover for intraday (or long-term strategies) is a combination of SMA10, SMA50, SMA100, and SMA200, but you need to change the chart time frame for each strategy. For example, for the long-term strategy, you will use a combination of SMA10, SMA50, SMA100, and SMA200 on H4 or a daily or weekly chart. For intraday trading, you will use m30 or m15 or a 1-minute chart.
The best MACD settings for 30 min in tests were default settings parameters 12, 26, and 9 based on research on major forex pairs. Our research didn’t find any statistical significance when we compared default settings and combinations of varied values.
Trade with the help of MACD
As there are 2 moving averages with different speeds, it would be quicker to react to the price movement for the faster one than, the slower one. Whenever a new trend is discovered, it would be the last line that would be the first to react, and it would cross to the slower line eventually. When the fast line begins to diverge as the crossover starts, it will move away from the slower line, and a new trend would be indicated as being formed.
Crossover Example of MACD
MACD does have a drawback, and that is the fact that they tend to lag when it comes to price since it is just the historical prices average. One would expect a bit of lag as the MACD represents the moving averages of others, and it is as such smoothed out by one another. Despite this fact, it is still one of the effective tools used by most traders.
Indication of Changes in Stock or Forex Trends
IN the MACD series, with the help of different periods, EMAs can indicate the changes in stock trends. Normally, the fast EMA would respond much quicker as compared to a slow one. Subtle shifts can be revealed in the stock trends with the help of the divergence series.
Mathematical Interpretation
The MACD is a measure that is filtered of the price, which derives the input regarding the time in signal processing. Velocity is the term for the derivate as used in technical stock analysis. It would estimate the derivatives just like how if it had been calculated. The difference in the time constants would be discovered using filtering by the 2 low-pass filters.
Just as it would have been filtered by an EMA of a single low pass exponential filter, MACD can be seen to approximate the derivative through calculation. The time constant would equal the sum of two filters’ time constants, which one would multiply by a similar gain. The MACD derivative would be estimated through the approximate filtering of the equivalent of an EMA filter of low pass.
Furthermore, the average series can also be thought of as a derivative estimate, for further smoothing would be done by the additional low-pass filter. The difference between the average series and the MACD serried would represent a second price measure connected to the time. The estimate would have an additional gain factor equal to the signal’s filter constant and have an additional lag.
Classification
MACD could be classified as an APO (absolute price oscillator) as it does not deal with percentage changes but instead with moving averages of the actual prices. PPO or a percentage price oscillator would compute the difference of 2 moving averages of the price on the other hand and divided by a longer moving average.
The PPO will calculate the changes relative to price, and the APO would show smaller levels of lowered price securities and greater levels of the higher price securities. When one compares the oscillator values of various securities, a PPO would be preferred, especially for different prices.
Long-term trends are ignored by the DPO (Detrended Price Oscillator), another member of the price oscillator family. Instead, short term patterns are emphasized.
Trading Interpretation
EMAs highlight the current changes in stock prices. The MACD can gauge the changes in stock trends by comparing the different lengths of the EMAs. The difference between the average claimed by the MACD and the MACD series helps reveal the shifts in the direction and the strength of the stock trends. It might even be necessary to correlate the indicators of the MACD to signals such as the RSI power.
Some traders would attribute importance to the MACD line that crosses the 0 axes and the MACD line that crosses the signal line. The importance is also due to the disagreements between the different lines, the MACD line, and the stock price.
Signal-Line Crossover in our tests
It happens when the average lines and the MACD cross, meaning that the divergence would change its sign. The interpretation of this would be that it would be recommended to buy as long as the MACD line crosses over the average line. These events indicate a trend in which the stock would accelerate towards the crossover.
False Signals in our tests
It is possible for there to be false signals, just like any other forecasting algorithm. It would be prudent to apply filters to the signal line crossovers. Analysts use different approaches to find the right results. We chose our trading rules. You can make any test using its own strategy. Each strategy will have false signals.
Thoughts
We think that the best success we can get using standard basic MACD intraday settings because most “big dog” traders and institutions use these settings. In our test, we got similar results, but basic settings made the best results.
