Now you are reading
MACD instead of moving averages? Use in everyday analysis

MACD instead of moving averages? Use in everyday analysis

created Natalia BojkoJuly 15 2019

Convergence / divergence ratio of moving averages (MACD) is one of the most recognizable elements of technical analysis. There are generally many ways to use it. In general, it is used to determine the strength of the market. It also works as a generator of buy and sell signals. Moving Average Convergence / Divergence (in short, just MACD) will certainly be a very good supplement to everyday analyzes, if (which is worth emphasizing) we combine it well with the other elements of AT. Therefore it is worth to read this articleto avoid possible mistakes in daily analysis.

Download: MACD with visible 2 lines for MT4

MACD instead of moving averages?

To explain why the convergence / divergence ratio of moving averages can be replaced by the same averages added to the chart, it is worth looking at what it is built from. Namely, MACD consists of two EMAs, which in standard parameters are set on 12 and 26 periods (in the red line chart). The difference between them is usually given in the form of a line graph. Often we will also meet with form Moving Average Convergence / Divergence in the form of a histogram. In addition, we will also find in it the second type of medium SMA (blue line chart). It is usually set on 9 periods. We call it a different signal line. Below we have added a pointer to the chart.

macd on the chart


Therefore, if our strategy is largely (or totally) based on averages, MACD can be used instead of them as a signal generator. Using both indicators simultaneously (averages on the chart and  Moving Average Convergence / Divergence) it is pointless. When looking at the intersection between EMA or EMA, or SMA, and treating it as a buy signal, using MACD is excluded. It often happens that finding a place for potential entry into a short position, the average convergence / divergence indicator, may not yet generate such a signal (due to different period settings). They may occur earlier than those directly visible on the chart or with a delay. Therefore, it is better to focus on either MACD or on medium.

Generated signals

Thanks to the indicator, we can read not only the places of potential entry into the position, but also the strength of the generated traffic. Therefore, we have several approaches to its analysis and additional indicators (to which we will go later in the article) worth connecting to the MACD.

We already know on what parameters it works Moving Average Convergence / Divergence. Based on this knowledge, we can approach it as signals read from SMA and EMA. We're looking for places of intersection.

macd intersection

The signal is generated (according to the arrow designation, green-buy, red-sale) at the visible intersection of the line.

You can also base on the histogram itself, where, in addition to strength  motion, our signal generator is the intersection of the 0 point (color change of the histogram). In the chart below I have also marked such places.

macd 0 line

The MACD oscillator seems therefore relatively easy to read. Nevertheless, it's worth taking a look at the histogram. It is an interesting tool for filtering shorter (less important for longer-moving signals) signals. It is relatively easy to read them. The higher the bars, the stronger the movement. If for a long time they change the color oscillating very close to the 0 line, the price movements are less significant and weaker.

Be sure to read: When to consider that our strategy does not work

What to top up with MACD?

The title indicator is a good complement harmonic formation. They are treated more as an auxiliary aspect than the main, decision-making element of the strategy. However, it does well with RSI. As we know, the Relative Strength Index (RSI) signals us the moments of selling out and overbought, where important buy signals  is the 30 level and lower, a  70 sales and above. The standard settings of this indicator include 14 periods. For example, if the last 14 candles were inheritable, the Relative Strength Index would adopt a value close to 0. Generally, this indicator helps in the location of turning points.

In our chart, RSI is modified to calculate the value from 7 candles. This helps to identify any sale / purchase (change of price movement) before the intersection of the MACD line or close the histogram to the 0 line.



MACD is a good complement to the strategy (those based on averages, where we can replace them with this indicator), price action, harmonic formation, an auxiliary when searching for divergence on RSI. It would take a long time to write out all possible versions of its use. Nevertheless, this indicator is so simple that even novice traders will be useful in everyday analysis. We can use it while playing at relatively high and low intervals. It is worth remembering to modify the default settings to your needs, test them and adapt them to our strategy.

What do you think?
I like it
Heh ...
I do not like
About the Author
Natalia Bojko
Graduate of the Faculty of Economics and Finance, University of Białystok. He has been actively trading on the currency and stock markets since 2016. It assumes that the simplest analyzes bring the best results. Supporter of swing trading. When selecting companies for the portfolio, he is guided by the idea of ​​investing in value. Since 2019, he has held the title of financial analyst. Currently, he is the co-CEO & Founder in the Czech proptrading company SpiceProp. Co-creator of the Podlasie Stock Exchange Academy project (XNUMXrd and XNUMXth edition).