How to use MACD Indicator to Trade Stock & Binary Options

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MACD Pullback Binary Options Trading Strategy – How it Works

Binary options traders know that markets move like waves. A gradual and sustainable trend is always full of retracements, rebounds and whipsaws in the opposite direction, giving a chance for traders to use that advantage, finding entry points. Unilateral action is vulnerable to a complete reversal and even entire plunge, thus, we’d consider usual price action in this article. The toughest task for any analyst, including a technical one, is to determine the depth of a potential retracement and find the perfect moment to start the trading cycle. Even short-term periods of sustainable action could give significant profits in binary options trading.

MACD Pullback Binary Options Trading Strategy Overview

Every trading system must be simple to use, and reliable and the MACD indicator Pullback strategy is not an exception. Two well-known and straightforward technical indicators are used here. The primary one is popular trend tool – MACD – with default settings. The second instrument to monitor the price action is the exponential moving average with the period of 50 bars. Short-term traders, who prefer timeframes like 15-minutes and one-hour, would not like this system as it requires patience. The first chart to analyse is the four-hourly timeframe, while the daily cycle also works well. Any underlining asset could be chosen for the MACD Pullback Binary Options Trading Strategy as its both indicators are reliable for any asset class including currency pairs, commodities, shares, stock indices and even cryptocurrencies. The essential requirement is related to the trading volume as MACD does not include all of the price fluctuations for low-liquid assets trading in thin market conditions. Price gaps aren’t the best option in this case.

What is MACD Indicator

The main idea of the price action is to catch a rebound of the price after an initial spike upside or plunge as the direction does not matter. MACD indicator perfectly shows the change in the trend’s momentum with its lines – MACD line and Signal line. The trigger is a crossover of those curves. Traders should pay attention to three critical stages before starting the cycle — first, MACD line breaks above/below the zero line during the initial action. Second, an opposite crossover occurs, pointing to the start of the rebound. Third, both MACD lines cross each other again, showing the continuation signal with the condition that the price should stay above the EMA50 for an uptrend and below the curve for a downtrend. We start opening deals on the third trigger.

If you like this strategy, you might also be interested in this Darvas box

Conclusion

Exit conditions are always different, and they depend on such factors as the volatility of an underlining asset, trend’s strength, fundamental elements and long-term trend direction. Risk management rules should be applied, as well. The primary approach is that grabbing several lucrative deals in comparatively short-term period is always an advantage rather than overtrading and having losses instead of gains. Therefore, too long cycles add risks. The most significant advantage of the MACD Pullback Trading Strategy is that it’s reliable and efficient. An example of the MACD trading strategy in action is shown on a four-hourly GBP/USD chart below.

Guide to Using the MACD Indicator to Trade on IQ Option

MACD indicator overview

The Moving Average Convergence Divergence (MACD) is a trend following and momentum indicator. It’s one of the simplest and most effective indicators to use when trying to identify trends and possible trade entry points. This indicator has two moving averages that oscillate above and below a center zero line.

This guide will teach you how to set up the MACD indicator and use it to trade on IQ Option.

Setting up the MACD indicator on IQ Option

Setting up MACD on IQ Option

After logging into you IQ Option trading account, set up your candle sticks chart. Next, click on the indicators feature and select Momentum. Finally, select MACD. This indicator comes with the settings of 12, 26 and 9. Leave them as they are.

Understanding how the MACD indicator works

The MACD indicator is all about convergence and divergence of the two moving average lines. The EMA12 line reacts to price changes faster than the EMA26 line.

The convergence or divergence of these two moving averages is a signal that a trend is developing (or not).

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When the EMA12 crosses above the EMA26, and move above the zero line, this is positive divergence. As the gap between the two lines increases, the stronger the upward price momentum becomes. At this point, you should enter a buy position.

When the EMA12 crosses below the EMA26 and moves below the zero line, a negative divergence is occurring. As the gap between both MAs increases, so does the downward momentum of the prices. At this point, you should enter a sell position.

MACD divergence

MACD divergence occurs when the two moving average lines seem to fall while the prices are rising and vise versa. This phenomenon signals a potential trend reversal. Trading MACD divergences isn’t advisable. It’s best to wait until the MACD indicator signals a clear trend.

The MACD indicator is one of the best tools you can use to identify trend reversal signals. Now that you’ve learned how to set it up and use it, try it out on your IQ Option practice account today.

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Ways to use MACD

Good Day Traders,

In this article I will tell you some ways to use the MacD oscillator. It’s for sure one of the most popular indicators in the trading community and created by Gerald Appel in the late 1970s. You can see Macd in several forms out there because the traders and the coders try to adjust it to the their current strategy.

The default setting of this indicator are (12,26,9). Look at the first screen shot.

It’s from EURUSD currency pair. In this chart we have a MacD with default settings without the histogram. We have only the zero line(the purple line) and two EMAs, the 12 day which is the faster one and the 26 day which is the slower. Now, form this screen shot we could take some signals. When the EMAs are above the zero line there is a bullish activity. On the other hand, when the EMAs are below the zero line there is a bearish activity. In the chart you can see some put arrows. There arrows are EMAs crossovers. When the slower 26 EMA(the blue one) is above the 12 fast EMA we have short signal. In the opposite condition when the faster EMA is above the slower we have a long signal. The problem with this indicator is that it creates so many signals and as it’s natural many of them are wrong. Take a look in the second screen shot.

This is the same chart with the above EURUSD but here you can see a different view of MACD. We have a histogram. In the histogram notice the colors. We have light green and dark green. Red and dark red. When the histogram makes bars below the zero line it’s a bearish signal and when makes bars above the zero line it’s a bullish signal. Notice some spots in which there are bars above the zero line but we have down moves. These are with dark green color. It means that we have a down move but the momentum is still bullish and there is still bullish activity.

The best signals is when the MACD makes bars clearly above or below the zero line. You can use both the histogram and the EMAs to have a better picture what going on. Another way to use this indicator is the divergence as I said before in my article about divergences.

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