Welcome to our third and final video of our three-part series, “How to Use MACD – Part 3.”
Before we get started, as I mentioned, this video is part of a three-part series. If you are finding us for the first time, you can click here to start Part 1.
If you’ve seen Part 1, but missed last week, you can click here to catch up with Part 2.
To quickly review, in Part 1 of “How to Use MACD,” I discuss how to trade the MACD cross. Most traders buy a bullish cross and sell a bearish cross, but as you witnessed in Part 1, I choose to trade the MACD cross in a very different way.
In Part 2, we discussed how to trade MACD divergence, and I gave you a trading strategy that you could start testing right away to prove the strategy works.
Finally, jumping into Part 3, I’m going to teach you how to identify overbought and oversold market conditions using MACD.
Now, you may be asking, “How can MACD help traders identify overbought and oversold market conditions?” Great question! Here are a few simple steps to follow.
First, to identify an overbought or oversold condition, you will need to load 1-2 years of data onto your price chart.
Next, you will need to install the MACD indicator, with the default setting 12, 26, and 9.
Your third step is to identify the peaks and valleys of the MACD indicator. Once you’ve identified the peaks and valleys, you draw a horizontal line across those peaks and valleys.
The next time the MACD indicator reaches either the peak or the valley line that you drew on your chart that will indicate a market condition of either overbought or oversold.
Keep in mind that just because a market is overbought or oversold, does not mean that the market is ready to reverse.
Once you have identified a market condition, your next step is to look for a bullish or bearish price action candle. The two simplest candles to look for are a hammer/pin bar candle and the engulfing candle.
Finally, before entering the trade, you can look for a break of the hammer/pin bar candle or engulfing candle as a confirmation signal.
In closing, I would like to, once again, remind everyone that I’ve recently started hosting FREE live streams every week. These live streams are an excellent opportunity for traders of all skill levels, to ask questions and interact with me live. Again, this experience is entirely FREE to you. So if you haven’t already signed up, why are you waiting? Fill out the form above to be notified before any of my future live streams.