Best MACD Indicator Settings YOU NEED TO KNOW!!!

Summary

In this video, the presenter discusses four key settings to enhance the effectiveness of the MACD (Moving Average Convergence Divergence) indicator. These adjustments, including faster reaction times, divergence detection, histogram focus, and the use of OHLC4 data for more accurate calculations, help traders optimize their strategies for different market conditions. The video provides clear, step-by-step instructions on how to apply these settings in TradingView, offering valuable insights for both short-term and long-term traders looking to refine their trading techniques and improve decision-making.

Takeaways

• 😀 The MACD indicator is widely used in trading, and customizing its settings can make it more effective and easier to use.
• 😀 The first key setting is adjusting the fast length to 3, slow length to 10, and setting the signal smoothing to 16 to make the MACD more responsive to price movements.
• 😀 The oscillator and signal line should both be changed to Simple Moving Averages (SMA) for quicker reaction times in the MACD.
• 😀 A faster-reacting MACD may be useful for short-term traders but could lead to more false signals.
• 😀 The normal MACD with standard settings is better for longer-term traders as it reacts more slowly to price changes.
• 😀 The second setting introduces the MACD Divergence Indicator, which automatically detects bullish and bearish divergences in the market.
• 😀 Bullish divergence occurs when the price prints a lower low, but the MACD shows a higher low, indicating a potential upward reversal.
• 😀 Bearish divergence happens when the price prints a higher high, but the MACD shows a lower high, signaling a possible downward reversal.
• 😀 The third setting focuses on using only the MACD histograms, removing the MACD and signal lines to highlight momentum strength.
• 😀 By removing the MACD and signal lines, traders can more clearly see the difference between the two, providing insights into market momentum.
• 😀 The fourth setting adjusts the MACD's calculation source to OHLC4, which uses the open, high, low, and close prices, offering a more accurate reading during candles with significant wicks.

Q & A

What is the main purpose of this video?

The video aims to explore four MACD settings that can improve the effectiveness and responsiveness of the MACD indicator, making it easier for traders to use in various market conditions.

What is the standard MACD setting, and how is it adjusted in the first setting?

The standard MACD setting has a fast length of 12 and a slow length of 26. In the first setting, the fast length is adjusted to 3, the slow length to 10, and the signal smoothing is set to 16. Both the oscillator and signal line are changed to Simple Moving Averages (SMA) instead of Exponential Moving Averages (EMA).

How does the adjusted MACD react compared to the standard MACD?

The adjusted MACD reacts faster to price movements. It shows changes in the histogram more quickly, turning green or red faster than the standard MACD, which makes it useful for short-term traders.

What are the trade-offs of using the faster-reacting MACD?

While the faster-reacting MACD provides quicker signals, it can also lead to more false signals. This setting is better for short-term traders, but longer-term traders might prefer the standard MACD to avoid unnecessary noise.

What is a MACD divergence, and how is it detected in the second setting?

A MACD divergence occurs when price moves in one direction, but the MACD moves in the opposite direction. The second setting introduces a MACD Divergence Indicator that automatically detects bullish or bearish divergences, helping traders spot potential trend reversals.

Can you give an example of a bullish divergence?

A bullish divergence happens when the price forms a lower low, but the MACD forms a higher low. This indicates a potential reversal to the upside, as seen in the example with gold on the 4-hour time frame.

What is a bearish divergence and how is it identified?

A bearish divergence occurs when the price forms a higher high, but the MACD forms a lower high. This suggests a potential downward reversal, as demonstrated in the video with a bearish divergence on the price chart.

What does the third MACD setting involve, and how does it change the indicator?

The third MACD setting involves disabling the MACD and Signal lines, leaving only the histogram. This provides a clearer view of the difference between the MACD line and the Signal line, allowing traders to focus on momentum strength and market trend.

Why is the histogram important in the third setting?

The histogram shows the difference between the MACD line and the Signal line. By focusing only on the histogram, traders can better assess the strength of momentum in the market and use it to make more informed trading decisions.

What does the fourth MACD setting do with the source, and how does it affect calculations?

The fourth setting changes the MACD calculation from using only the close price to using the Open, High, Low, and Close (OHLC4) of the candle. This makes the MACD more accurate by considering the full range of price movements within each candle, reducing the impact of price spikes or wicks.

How does the OHLC4 source affect the MACD in practice?

Using OHLC4 instead of just the close price results in a MACD that reflects more accurate price action. For example, candles with long wicks will have a slightly higher MACD value, providing a more comprehensive view of market momentum.