The MACD Indicator For Beginners [Become An Expert Immediately]

today i want to share an all-inclusive guide to one of the most popular indicators on the planet the moving average convergence divergence indicator otherwise and more simply known as the macd indicator now just like other indicators the macd is not some holy grail of trading and if used improperly it can lead to false signals it can lead to losing trades and possibly even blown accounts but if you use the macd correctly it can help you to create some extremely profitable trading strategies and very high probability trading opportunities that can lead to profits for years to come and that is why in this video you're not only going to get a full guide of what the macd is but i'm also going to show you how i use it in the most profitable ways and later in the video you're going to be learning a full profitable trading strategy using the macd indicator this way you can go away from this video with the ability to conquer markets using the macd so if that sounds good go ahead and smash that like button for me go ahead and subscribe if you are new and click that notification bell while you do that i'm gonna let the intro and disclaimer roll and i'll see you guys directly after [Music] welcome back and let's go ahead and get started with what is the macd the macd is known as a trend following indicator it can help us determine the underlying trend of any asset that we're looking at on top of that it can also be used as a signal to buy or sell now we're going to talk about how to do those things with the macd a little later in the video but for now since you know what it is and what it's used for let's dive into how it actually works on the screen you see the macd that's what this is here and if you're on trading view it's very easy to find go to indicators type in macd it will be moving average convergence divergence click that it'll be plotted on your chart now this indicator is composed of two lines and a histogram on most trading platforms so with this being the case let's actually double click this the first line that the macd indicator has is called the macd line we also have something called a signal line and we have our histogram right but the most simple form let's go ahead and do this is the macd what is this line what's the math behind it the math behind the macd line is pretty simple it's just the 12 ema minus the 26 ema that's how we plot this line or how the indicator plots the macd line the next line that we have on the macd is the signal line the signal line is very simple it is nothing more than a 9 ema of the blue line or our macd line so it's just meant to smooth out the mac d line by being a fast moving average that's based on the macd line and as you can tell that's exactly what it does it's just a much smoother line than our blue line now next up we have the histogram the histogram on a macd is just showing you the distance between the macd line and the signal line the larger the histogram the more space there is between the macd line and the signal line and the closer we get to a cross the smaller the histogram becomes and upon the cross we will see a switch from green to red or vice versa in the other direction as soon as we get across between our signal line and our macd line so the histogram is there to show you the distance between the two lines as well as to make it more visually easy for you to see when a cross actually occurs so now hopefully you have an idea of what the macd is and how it works what we're going to do now is dive into how we can actually use the macd in our trading see there there are three main ways that we can use the macd in our trading we talked about them a little bit earlier in the video but the first way is to help us identify the trend of a particular asset the second way is to help us find buy and sell signals and the third way which we have not discussed at all yet is to use macd divergence in order to spot possible reversals now we are going to dive deep into each of these but before we do please understand that even though all three of these things can help us predict market moves and create more accurate trading opportunities by themselves these things are not going to equal a million dollars in your trading account next week just like with any other indicator the macd is there to help provide more confluence to other factors that we have going in the correct direction to either sell or buy in order to make more accurate trading opportunities so keep that in mind as we move forward but let's go ahead and talk about how we can use the macd indicator in confluence with other things in order to help us identify the trend of a market so the macd indicator outside of the two lines and the histogram has something called a zero line now the zero line may or may not actually be on the indicator as you can see right here i've actually put a black horizontal line here for the zero line but your zero line will be where the histogram starts just in case there's no line on there in combination with other factors if the signal line and the macd line are both above our zero line on the macd then that market is considered to be in an uptrend and vice versa if the signal line and the macd line are below the zero line on the macd indicator then that can give you more confluence that a particular market is in a downtrend just to give you an example of this something we would look at possibly is the 200 ema price needs to be below that for us to consider something in a downtrend then we want to combine that with both the signal line and the macd line being below zero on our macd indicator as an extra confluence that we are actually in a downtrend and with those two things coming together we can start to do things like trade little pullbacks based on candlestick patterns or price patterns in anticipation for this downtrend to continue until we see some type of reversal pattern like a double bottom and price start to trend higher that is one of the ways that we could use the macd to help us identify trend now we're going to go over a lot more of this i'm trying to just get you familiar with it at first though so let's go ahead and move on now to how we can use the macd indicator in order to find buy and sell signals well the way we can do that and yet again without just using this obviously just using this is not going to be something that provides a tremendous amount of accuracy to your trading but something we can do is look at the cross of the macd line which is our blue line through our signal line the direction that that cross happens a lot of times can provide a confluence to a possible entry in this case if we look up from here we have that happening at a peak in price before price continued lower now again just to give you an idea of confluence because obviously if we traded every time the macd line crossed sometimes we would win sometimes we would lose we want to have some confluence there to give ourselves the most accurate trading opportunities possible using the macd so something we might add to this is scrolling the chart left and only placing trades when we have price pushing up to a major level of structure then using that mat d line crossing below the signal line as an entry into that trade stop loss above here targets wherever you want them to go so that's again just another example i'm trying to speed through this to get you familiar with how we're going to be using this to create strategies later in the video and to set up some cool trading opportunities a little bit later on now the third and final way is by far my favorite way to use the macd indicator in confluence with my trading and that is to wait for macd divergence now in case you are unfamiliar with divergence i will do a very quick example of it divergence would be if price is heading lower lower lower and the indicator you're looking at in this case it's going to be the macd instead of making a lower low like we did right here this low being lower than this low if this happens on price and then the indicator does something like this goes from a lower low to a higher low that is what we call divergence now the macd indicator is one of the best indicators i've found to use divergence to help point out possible reversals something i really like to do a little bit of a hint towards one of the strategies we're gonna be talking about is look for this situation at levels of structure where i'm coming down into a level of support right here let's say this was a level of support looking left in the past blah blah blah blah and at this point seeing rsi divergence then combining that with a candlestick pattern may be a way of creating or actually is i've already tested this is a way of creating a really accurate trading opportunity that can give you an edge and provide those profits for years to come that i was talking about towards the beginning of this video so let's take a look at what this looks like on price a really good example of this is actually right here if i scroll up a bit you can see price i just thought it would be easier if i drew it out first but as you can see here price is coming down to a low here's that low on our indicator we have a pullback pushing down to a new lower low what happens on our indicator higher low so since we have this divergence which is what we call this our next step would be to look for some type of entry reason we don't just want to trade based on this if we have structure looking left that's a great confluence to add to our divergence on our macd indicator but not only having divergence on our macd but you add that to a double bottom an entry after that double bottom would be very accurate way to look for possible trading opportunities so now that you have a good idea of the three main ways we can use the macd indicator in our trading i'm actually going to move on now and give you some examples of creating high likelihood and high probability trading opportunities by combining the macd with trends by combining the cross of the macd line and the signal line with different types of candlestick patterns and chart patterns in order to add more accuracy to trading strategies and trading philosophies that are already accurate by themselves and directly after that we will take a look at a full rules-based trading strategy that is profitable for me that you can take and test and possibly even use add to your trading arsenal that way at the end of this video you'll have everything you need to conquer markets using the macd indicator see you guys in just a second okay so now we're going to take a look at three separate trading opportunities and what i want you to do is pause the video and see if you think this is a high likelihood trading opportunity or a low likelihood trading opportunity meaning is it going to be a highly accurate situation to trade in or not so accurate of a situation to trade in so pause the video take a look at the chart and see what you think about this specific trade right here okay so hopefully you've done that i'm going to go ahead and talk you through this entire opportunity the first thing we want to look at is actually price not the macd indicator as i've said multiple times the macd indicator is just going to help us add confluence to things we already see price doing so in this case we had price pushing higher and the best way to do this is going to be with market replay mode actually in this case we had price pushing higher coming to what coming to a level of major resistance that pushed the market down in a dramatic way the last time price was around 1.1478 so with that being the case we already know we have a major level of resistance here we see price get to this level what's the next thing you notice well now instead of just looking at price we can actually add some confluence by going down to the macd and seeing the cross we can either look at the two lines to see the cross or we can look at the histogram and see that the histogram went from red excuse me from green to red right in here that is telling us that the macd is giving us a signal to sell at a major level of resistance that by itself is kind of a somewhat accurate opportunity i would not call that an extremely accurate trading opportunity though but if we let price continue pushing forward what you will notice is that we also end up with another higher high if i push this over almost like a horizontal line you can see that this wick went higher than the previous week making a higher high in price upon making a higher high in price we didn't even get a bump out of the 9 ema or the signal line but we can see a little bump here out of the macd line so with this being the case we now have mat d divergence at a level of resistance now what do we say macd divergence does it signals reversals so we had price heading higher the reversal in this point would be a reversal to the downside so adding all these factors together along with the fact that we have a double top chart pattern here as well in my opinion equals what i would call a high likelihood trading opportunity meaning i have a very good odds i have very good odds of success by taking this trade to the short side and looking for selling pressure based on these factors price is at a major level resistance the macd indicator has crossed the signal line we have a double top in price action we have macd divergence we see a red candle after the double top to give us indication of selling pressure after all of this confluence and that is when you want to be trying to place trades based on the macd indicator you don't want to place trades just based on the indicator you want to add all these different confluences together in order to equal the best possible trading opportunities in this case you'll see that it worked out really well here on the euro dollar and i wish this thing would go faster i may just speed up the video there we go okay and we've hit profits so that is an example of a really high likelihood trading opportunity that we use the macd indicator in order to confirm and as confluence with the trading opportunity let's take a look at two more then we'll move on to a full rules-based profitable trading strategy using the macd so with the next trade right here on the pound dollar four-hour chart would this be a high likelihood trading opportunity or a low likelihood trading opportunity hopefully if you pause the video and actually did some analysis yourself you were able to say very low likelihood and what's the reasoning i've removed the histogram to make the signal line and the macd line easier to see the histogram has no bearing on this specific trade so it's totally fine but as you can see price itself isn't really showing us a reason to enter a trade here anyway at this point we just have a period of consolidation and yeah price is back bouncing off of the previous support of this period consolidation but it's bouncing off of it for the third time and just like price is making these equal highs and can't really get above this high the likely scenario if we get down to a level of support in consolidation for a third time is that we're going to most likely break through that level because sellers have consistently taken control up here around the 1.4242 level now with this being the case that doesn't even really have to play a part in the analysis we're not trying to find a reason for the trade not to work out we really can't even find a trees of treason oh my god we really can't even find a reason that this trade would work in terms of price there's no price situation right now that's telling me i should place a buy trade and if we look down on the macd there's also no reason on the macd to place a bad trade we're below the zero line meaning we're in a downtrend we're not poised for any kind of reversal by being at like a major level of structure so with those two factors coming together we also don't have a cross of the macd line in the signal line so there's nothing here telling me i should buy so this would be an example of a really low likelihood trading opportunity and because of that price did in fact break below the lows and push down far enough to stop us out here on this trade so that was just to give you an example of a really low likelihood opportunity as well let's go ahead and move on and take a look at one more trade and then we'll move on to the full strategy lastly what about this situation here on the aussie dollar pause the video for a second do a little bit of analysis see if you think it's a good trading opportunity or a not so good trading opportunity i'm going to break the trade down personally i would see this trade right here as a good trading opportunity and the reason is because we always look at price first than the indicator second in order to identify more confluence in a trading opportunity so in this case we have price pushing higher we have a new high compared to the previous high we have a pullback into that previous high which happens to be a level of structure that was tested multiple times i'll show you by doing this right here structure is always zones not necessarily lines so in this case we have price coming back to our zone of structure that was tested multiple times considering that we can now look at the indicators in order to provide more confluence one of our indicators being the 200 ema prices above the 200 ema giving us an indication that we are in an uptrend which is pretty obvious from price itself at this point but again we're adding confluence with indicators if we look down on the macd what did we say we needed in order to identify an uptrend using the macd we need the signal line and the macd line to both be above zero is that happening right here yes that is happening right here both of the lines are above the zero line so this would be a good trade in my opinion considering all of this on top of price creating a candlestick pattern right here with our engulfing pattern now again we're using indicators like the macd in order to provide confluence so if you wanted more confluence on this trade what could you do well you could wait for the macd line to go below the signal line like what looks like is happening now and then for the macd line to cross back above the signal line and that cross back above would add more confluence to this trade you would have to be a little bit more patient to wait on the indicator to catch up to price but as you can see pressing play here that in fact does happen in this situation so an even more conservative way and uh even more confluence that you could add to this trade is by waiting for the cross of the macd and signal line which happens right around here on our histogram you can see that and that would add even more confluence to a trading opportunity like this one hopefully now you understand what the macd is how it works and how we can use it to create some really high likelihood trading opportunities in any market before we move on to the complete strategy if you got value out of this video then it's highly likely that you'll get value out of joining us in the eap training program now this is not a sales pitch but i just want to make you aware that we've had a few people graduate which means there's more space available in the eap training program so that is something that's available to you in this program i share a complete training course that goes through step by step what i've learned in my own personal trading over the past 10 years this program also includes a monday market breakdown video where i send you a video of the currency pairs along with the areas of structure that i'm personally paying attention to for trading opportunities on top of that we also send out about three to five email alerts every single week that are trades i'm actually placing and the best part of the program is that it's a mentor program meaning you'll have direct access to me through email anytime you have any questions about trading or about the course it'll be me personally answering those questions for you and the program comes with a 30-day money-back guarantee so if that's something you're interested in go ahead and click the link in the description or go to www.eaptrainingprogram.com that link should be on the screen somewhere if you're not interested in that it's totally fine too just make sure you're subscribed here and we're gonna go ahead and move on now to a full and profitable strategy using the macd indicator okay so we're actually going to take a look at two separate strategies one of them is a little bit more rules-based than the other one a little bit more systematic this one that we're taking a look at here it's a trade i'm actually involved in that requires the macd to have divergence in order to start looking for possible reversals so in terms of looking for reversals one of the things that i like to do most is wait for price to be at a level of major structure so right here you can see that we have a major level of structure i know you can't really see that yet let's go out to a higher time frame the four-hour chart so on the four-hour chart you can see that this area is an area that's acted as resistance multiple times so if i have price coming up to an area like that and an area like that on a higher time frame and price is coming up to that area on my lower time frame with divergence on the macd then that's giving me a really clear indication that price has a likely scenario as a likely scenario is going to head lower and reverse so with that being the case let's go ahead and discuss a little bit about this divergence we have on the macd as you can see price is creating higher highs here this high being higher than the previous high so we have art we have excuse me not rsi almost said that we have macd divergence here because the macd is creating lower highs hopefully that's clear to everyone as the macd is creating lower highs and prices creating higher highs this is what is known as divergence when we have divergence coming into a higher time frame level of structure again adds confluence to that possible reversal for selling pressure i just wanted to see a couple of red candles to see that sellers are trying to take control from this major level of resistance alongside with our macd divergence as you can see i've opened a trade here i'm actually down about 140 at the moment and what we're going to do now just to ensure that you have a good grasp on this specific strategy is take a look at a bullish version of this strategy right now i'll see you guys there for our second example we're on the aussie yen for our chart as you can see price is now hitting a level of major structure support this level acted as major support for the aussie yen looking left it's around 79.19 between that and 78.82 as we push down into this area i want you to look down at the macd indicator do you notice anything that would stand out to you in a live trading environment or a live trading situation hopefully you said yes and hopefully you pointed out the fact that we have lower lows on price combined with higher lows on the indicator when this happens again this is something known as divergence and when we have divergence coming into a level of major structure support we can look to buy that as a possible reversal or at least that's what i do in my own personal trading you decide how you want to trade that's not financial advice but in this case i would look for a couple of green candles to show me that buyers are trying to take control from this area of support alongside with our macd divergence and with that being the case it may be a situation where i place a trade looking at a stop loss below the swing low a target about 1.4 to 1 which is one of my favorite ways to take targets if we hit play here you'll see that this trade in fact would have worked out in our favor while combining again the macd divergence with major levels of structure and buying pressure to look for possible reversal trading opportunities our last strategy is going to be a completely rules-based strategy that uses the macd to help capture trend continuation we're going to need two different indicators for this specific strategy one of them is the 200 ema which is the blue line you see on my chart and the other one obviously is going to be the macd for this strategy i'm going to go through a brief example of it then we'll look at a few other examples just to make sure that you are completely ready to go test and possibly add this strategy to your trading arsenal for this strategy we want to see price trading above the 200 ema at the point the price is trading above the 200 ema we're going to look down at our macd indicator what we want to see from the mat d is that our signal line the orange line and our blue line which is the mac d line both cross below zero zero remember is where the histogram starts you put a horizontal line there if your platform doesn't provide a zero line on the macd indicator when these two cross below the zero line we want to see that price continues to stay above the blue line which is our 200 ema so as long as this is all coming together price is staying above the 200 ema we have the signal line and the macd line crossing below this is when we can start looking for a trading opportunity and what we want to see is a change in color from red to green for a by trade while all of this is still happening so this change in color which remember just signals the cross of the macd line and the signal line but this change in color must happen while price is still above the 200 period moving average and while the macd line and the signal line are actually below the zero line so if this cross happens up here somewhere while we're above the zero line then this is not a valid trade and if this happens but we have pushed below the 200 ema this is not a valid trade so now that you know the rules of this the opposite would be true for a bearish version of the strategy we're going to go through two examples of this strategy one bearish and one bullish to make sure you completely comprehend this strategy let's go ahead and take a look at a bullish example now okay so looking at the chart right now what do we have right now we have price that has just created a new high putting us into an uptrend or staying in the uptrend we were already in we can see that price is trading above what our 200 ema with those two things coming together what's the next thing we need to see from our macd indicator the signal line and the macd line need to go below zero here's our black horizontal line for zero as you can see both lines are now below the zero point what's next well next we want to see price continue trading above our 200 period moving average then we want to see a change on the histogram from red to green or in other words across of our macd and signal line once that cross occurs that's when we would want to actually place our trade looks like the cross occurred on this candle we would have a stop loss right below the swing low right here and for me as i said earlier i like targets to be around a 1.4 to 1 reward to risk ratio we will do that and let's go ahead and hit play and see what happened here price pushed up and eventually did hit targets so as a bullish example remember we're just waiting for price to continue trading above the 200 ema we're waiting for our macd and signal lines to be below the zero line on our macd indicator and we want to see a cross of the macdn signal line to the upwards direction while we're still below the zero line on the macd and while price is still above the 200 ema on the chart so that is a bullish example let's now go through a bearish example of this and then we'll take a look at a few of the results i had while testing this myself here's our bearish example and what do you guys see so right now you can see that price is trading where below our 200 period ema so with that being the case we know we're in a downtrend price has also created new lower lows compared to the previous low for extra confirmation is our signal and macd line above the zero on the indicator the answer is yes and for a bearish trade this is what we're looking for we're looking for these two lines to be above the zero line on the macd indicator what's the next thing we're looking for we want to see a change in color on our histogram does that happen here well yes we have a cross and i know that's very small in terms of the change in color hopefully you can tell that's red if not when you hover over it and look over here you can see a red number that actually this is the actual number of the histogram so that's how you can tell as well as by looking over here on your macd indicator but with all that coming together we have a valid opportunity here where i would go ahead and place a trade to the short side stop loss above the swing highs here since we have a short trade and short just means selling by the way if you're brand new so as we have a selling trade stops go above the swing highs that are below the swing low with that 1.4 to 1 target which is what i like personally we can see that price eventually pushes down and does in fact hit targets now for me this went on to prove to be a profitable strategy and before i get ahead of myself i actually got this strategy or a very large portion of this strategy from another youtube channel so i'm going to give props where props are due i believe the channel name is pro trade or either trade pro i'll try to put a screenshot on the screen of their channel uh so go over there check out i think it's trade pro go check out trade pro they have a lot of really cool strategies on or i think it's just one guy but he has a lot of cool strategies on his channel so feel free to go check them out a lot of the strategy you just saw came from that channel but it's something i've been testing myself and it's actually provided pretty decent results like here on the pound dollar four hour chart as you can see my testing results here are about a little bit above a fifty percent chance to win alongside that fifty percent chance to win i also have about a one point four to one reward to risk ratio so anytime you can get above a fifty percent chance to win and have more than a one-to-one reward to risk ratio you have what we know as a profitable trading scenario 50 or above i think i got like 53 on this specific currency pair and that's what we're looking for in order to give ourselves an edge in the market remember if you would like to join us in the eap training program you can go to www.eaptrainingprogram.com the link is in the description and that should be on the screen somewhere as well and also before i let you go please remember that having a strategy or knowing what the macd is how it works and how to use it will not provide you with a profitable trading career you must master what i call the triangle of trading success if you ever hope to be profitable imagine this triangle and imagine all the traders that are making money from trading everywhere from warren buffett to the retail trader in his mom's basement that's just now starting out but he has become profitable all of these profitable traders have these three things in common they have found a strategy that makes money over time as i said something with above a 50 win rate and a higher than one-to-one reward to risk ratio if you can consistently do that you will be profitable in terms of your strategy but that doesn't mean you will be profitable if you don't understand risk management then this could lead to you blowing your account why you might ask because even with a strategy that makes money over time you're gonna have things like losing streaks and drawdowns and if you're risking upwards of five to ten percent of your account that draw down that losing streak will either be too much for you to emotionally handle while and continue trading the strategy or could possibly if your upper end on the spectrum of risk if you're at 10 and you have 10 losing trades in a row not likely but possible then you could just blow your entire account in a losing streak without realizing that risk management could have made you a profitable trader and even though you blew your account because you were risking too much if you were risking two percent or less on your trades over the course of a long period of time you could have been profitable on top of risk management we also have to study and master trading psychology or discipline that way we can stick to this strategy because if you have a strategy like we discussed that's rules based and that provides an edge over the market but instead of sticking to that strategy you're out here watching tons of different youtube videos and trying every strategy that you learn or that someone else is using or you're just randomly placing trades because you have fomo fear of missing out and you want to be involved in the market if you're doing those things then this is where you need to focus your work is on trading psychology and discipline read books watch videos about trading psychology understand that trading comes with wins and losses and understand that trading is a battle of statistics and emotion but if you can take the emotion out trading is just based on statistics we're just looking to have a way of making money over a long period of time we're looking to place trades in a consistent way to provide a money making edge over markets it's gonna be my final lesson of this video if you enjoyed it please remember to go ahead and click that like button and subscribe go ahead and comment if you made it to the end and i'll catch you guys in the next video talk soon

Channel: The Trading Channel

Views: 183,037

Keywords: MACD, MACD Indicator, macd indicator, macd indicator explained, macd trading strategy, macd divergence strategy, macd rsi, moving average convergence divergence (macd) indicator, moving average convergence divergence indicator, moving average convergence divergence calculation, moving average convergence divergence strategy, moving average convergence divergence signal line, moving average convergence divergence explained

Id: w_F7d_M7hTU

Length: 33min 53sec (2033 seconds)

Published: Thu Mar 03 2022