MACD

Moving Average Convergence Divergence indicator.

Overview

The Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator. It shows the relationship between two moving averages of a security’s price. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA.

Interpretation

The MACD is interpreted as follows:

• When the MACD line crosses above the signal line, it gives a bullish signal, indicating that it may be a good time to buy.

• When the MACD line crosses below the signal line, it gives a bearish signal, indicating that it may be a good time to sell.

Indicator Triggers:

MACD cross up/down level

As soon as the MACD cross up the level 0, a long signal is triggered.

The MACD line cross up the level 0 at the green arrow, a long signal is triggered.

Signal line cross up/down the MACD line

Place a long signal when the signal line cross down the MACD line.

A long signal is triggered once the signal line (discontinuous yellow line) cross down the MACD line (continuous green line), at the green arrow.

In zone

Place a short signal when the MACD is between [200;600]

As soon as the first candle closes in the red zone [200;600] a short signal is triggered, at the red arrow.

Notes

1. Trend Following: Utilize MACD Line Crossovers

In trend-following strategies, pay attention to the crossovers between the MACD line and the signal line. When the MACD line crosses above the signal line, it indicates a potential start of an upward trend, signaling a buy opportunity. Conversely, when the MACD line crosses below the signal line, it suggests a potential downward trend, signaling a sell opportunity. Use these crossovers as entry and exit points in line with the identified trend direction.

2. Mean Reversion: Watch for MACD Divergences

For mean reversion strategies, look for divergences between the MACD indicator and the price movement. A bullish divergence occurs when the price makes a new low while the MACD forms a higher low, indicating a potential reversal to the upside. Conversely, a bearish divergence happens when the price makes a new high while the MACD forms a lower high, suggesting a possible reversal to the downside. These divergences can signal that the current price trend is losing momentum and may revert to the mean.

3. Combine MACD with Other Indicators

The MACD is more effective when used in conjunction with other technical indicators. For instance, you can combine MACD signals with support and resistance levels, trend lines, or volume indicators to confirm the validity of a trend or potential reversal. Using multiple indicators helps filter out false signals and improves the reliability of your trading decisions.

4. Adjust MACD Settings to Suit Different Market Conditions

Customize the MACD settings to fit different market environments and trading strategies. The standard settings (12, 26, 9) are commonly used, but adjusting these periods can make the MACD more responsive or smoother depending on the trading timeframe and market volatility. For shorter timeframes or more volatile markets, consider using shorter periods (e.g., 6, 13, 5) for quicker signals. For longer-term trends, longer periods (e.g., 24, 52, 18) can help smooth out the noise and provide clearer signals.

By leveraging these strategies and tips, you can effectively use the MACD indicator on Runbot to enhance your automated trading bot approach across various market conditions.