In this week’s video, which will be the first video of a three-part series, we will be discussing how to use the MACD indicator.
To quickly review, for those that may need it, the MACD indicator is comprised of two lines; the MACD line and the signal line. To calculate the MACD line, you subtract the longer term 26 period EMA average from the shorter term 12 period EMA average. The signal line is the 9 period EMA of the MACD line.
Today, our primary focus is going to be on the MACD cross of the MACD indicator, which is frequently misused.
A lot of traders, tend to buy the market as soon as the MACD line crosses the signal line up and then sell the market when the MACD indicator crosses the signal line down.
To be successful trading forex and futures using the MACD indicator, you should use the MACD cross as a short term bias in the market. Once the MACD has crossed above the signal line, only look for buying opportunities using either a breakout or pullback strategy.
To give you an example of this, let’s refer to this week’s video on crude oil. When the MACD indicator has a bearish cross, traders can start to look for shorting opportunities in the market. Since recording this video, crude oil has dropped over 200 ticks. As you will see, crude oil futures provided great trading opportunities, using pullback, as well as breakout strategies.
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We will be diving into Part 2 very soon, so make sure to watch the video below, “How to use the MACD Indicator – Part 1.”