MACD Trend Following Strategy PDF

MACD and Moving Average Strategy

Since the MACD indicator uses 26 and 12 EMA to draw the MACD indicator lines, we shall compare these two EMAs with the MACD trend following indicator to determine how these buy and sell signals are generated and how the MACD indicator can be used to generate trend following signals.

MACD Indicator - MACD Trend Following Strategies - MACD Indicator Strategy - MACD and Moving Average Strategy Method

The MACD indicator is a trend following indicator meaning it generates trading signals that are leading compared to lagging indicators that lag behind the price.

Buy Stock Indices Trade

A buy trade is generated when there's a MACD fast line crosses above the signal line - this shows that there is an upward trend. However, as with any leading indicator these signals are prone to whipsaws/fake-out trading signals.

To eliminate the whipsaws it is good to wait for confirmation signals of the buy signals. The confirmation signal is when the two MACD indicator lines cross above the zero line mark, when this happens the buy signal generated is a reliable trade signal.

In the trading example explained and illustrated below, the Moving average indicator generated a buy trading signal, before the price started to move up. But it wasn 't until the MACD indicator moved above the zero line that the buy signal was confirmed, and the Moving Averages also gave an upward crossover signal. From experience it's always good to buy after both the MACD indicator lines move above zero center line mark - which shows there is an upward trend.

Where to Buy using MACD Indicator - MACD and Moving Average Strategy Method

Sell Indices Trade

A sell signal is generated when there is a MACD fast line crosses below the signal line. However, just like the buy trading signal, these are also prone to whipsaws/ fake outs.

To eliminate the whipsaws it is good to wait for confirmation of the sell signal. The confirmation is when two lines cross below zero mark, when this happens the sell generated is a reliable trade signal.

In the trading example explained and illustrated below, the Moving average generated a sell confirmed after MACD moved below the zero line at the same time that the Moving Averages gave a crossover trade signal.

Where to Sell - MACD & Moving Average Indices Strategy - Using MACD Indicator - Sell Signal