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MACD Indicator Settings for Day Trading: In-Depth

September 11, 2020 08:00 UTC
Reading time: 20 minutes

This article will provide an explanation of what the MACD indicator is, and it will explore the various features of the MACD indicator, how to scalp with the MACD indicator, the best MACD indicator settings for day trading with the MACD indicator, MACD breakouts, MACD patterns, and much more!

MACD Indicator Settings for Day Trading

The MACD is an indicator that allows for a huge versatility in trading. We can use the MACD for:

In this article you will learn the best MACD settings for day trading and swing trading.

What is the MACD Indicator?

MACD stands for Moving Average Convergence Divergence. It is a trend-following, trend-capturing momentum indicator, that shows the relationship between two moving averages (MAs) of prices. The MACD was created by Gerald Appel in the late 1970s. The MACD indicator formula is calculated by subtracting the 26-day Exponential Moving Average (EMA) from the 12-day EMA.

A nine-day EMA of the MACD is known as the signal line, which is plotted on top of the MACD, usually marking triggers for buy and sell signals. This is a default setting. The MACD is a lagging indicator, also being one of the best trend-following indicators that has withstood the test of time. This is why it is so desirable to know the best MACD indicator settings for day trading.

You don't need to download the MACD indicator separately, as it is already built into the MetaTrader 4 (MT4) platform. With the best MACD indicator settings for day trading, you can bring about great changes to your different day trading strategies.

USD/CAD Hourly Chart

Depicted: USD/CAD Hourly Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Another version of the MACD is the so-called '2-line MACD', which can also be combined with great trading strategies. The difference is that the default MT4 MACD indicator lacks the fast signal line (instead of showing the fast signal line, it gives you a histogram of it).

For trading, it's completely irrelevant, as long as you use it with other tools that work in conjunction with the MACD itself. When the red and blue MAs cross on the 2-line MACD, it is equivalent to the red MA line crossing the green histogram on the default MT4 MACD. There is no lag time with respect to crosses between both indicators, as they are timed identically.

Along with the best MACD indicator settings for day trading, using the '2-line MACD' can greatly benefit different trading strategies.

GBPJPY Chart

Depicted: GBPJPY Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

MACD Indicator Settings for Day Trading

There are many different parameters for the MACD indicator. Here are the main ones:

  • The fast and slow MA. With a greater difference between their periods, the histogram will show more rapid changes. Most often, you will leave these parameters at default (though some specific strategies require other parameters).
  • MACD SMA is a parameter within the MACD moving average itself. If you set this parameter higher, the average will move further away from the histogram, which means they will intersect less often. If you set the parameter value higher, there will be fewer signals.
  • Next, you need to set the open, close, and the candlestick's highest and lowest values.
  • Lastly, there are the minimum and maximum parameters.

Certain parameters, such as levels, will be required for different strategies. Lets look at some specific ways to use the MACD indicator and what the best MACD indicator settings for day trading are.

MACD Divergence

Understanding MACD convergence divergence is very important. When the price is making a lower low, but the MACD is making a higher low – we call it bullish divergence. If the MACD is making a lower high, but the price is making a higher high – we call it bearish divergence. Divergence will almost always occur right after a sharp price movement higher or lower. Divergence is just a cue that the price might reverse, and it's usually confirmed by a trendline break.

With the best MACD indicator settings for day trading, understanding MACD convergence divergence can greatly enhance a trader's strategy. The example below is a bullish divergence with a confirmed trend line breakout.

An Example of a Confirmed Break - EUR/USD Hourly Chart

Depicted: An Example of a Confirmed Break - EUR/USD Hourly Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

 Example of a Bearish Divergence With a Trendine Breakout - EUR/USD Hourly Chart

Depicted: Example of a Bearish Divergence With a Trendine Breakout - EUR/USD Hourly Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

MACD Indicator Settings for Intraday Trading

The MACD can be used for intraday trading with the default settings (12,26,9). However, if we change the settings to 24,52,9, we can construct a system with one of the best MACD settings for intraday trading that works well on M30. The intraday trading system uses the following indicators:

The system is traded on 30-minute time frames, and it is suitable for trading major Forex currency pairs such as: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, and other currency pairs like: GBP/JPY, AUD/JPY, USD/JPY, NZD/JPY, and GBP/NZD.

EUR/USD M30 Chart

Depicted: EUR/USD M30 Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

The rules are as follows:

Long Trades:

  • The price should be above the SMMA
  • The MACD should be below the 0 line
  • The William % Range should be crossing -80 from below

Short Trades:

  • The price should be below the SMMA
  • The MACD should be above the 0 line
  • The William % Range should be crossing -20 from above.

As you can see from the examples above, with the best MACD settings for day trading, the MACD is used in a completely different way than what you might have read on the Internet. The reason being – the MACD is a great momentum indicator and can identify retracement in a superb way.

Don't forget the basic principle of trading – in an uptrend, we buy when the price has dropped; in a downtrend, we sell when the price has rallied. This is exactly what the MACD is pinpointing at – when the price is ready to be sold and/or bought. Trading with the MACD should be a lot easier this way.

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Scalping With the MACD Indicator

There are different settings that constitute the best MACD settings for day trading. In this particular scalping system, you will use the MACD on different settings. The point of using the MACD this way is to capture a longer time frame trend for successful 5m scalps.

Indicators:

  • EMA 34 (Blue)
  • EMA 55 (EMA)
  • MACD (34,89,34)
  • Stochastic Oscillator (8,1,3 and 13,1,3), overlaid
  • Admiral Pivot set on H1 (requires MT4SE)

Time frame: 5m

Pairs: EUR/USD (focus), GBP/USD, GBP/JPY, USD/JPY, AUD/USD, EUR/JPY, USD/CHF

Long entries

:

  • The Blue 34 EMA should be above the Red 55 EMA
  • The MACD should be above the 0 line
  • The Stochastic (at least one of them) should be recently oversold at the 20 level, and should be crossed up
  • The Target is an Admiral Hourly PP

Short entries:

  • The Blue 34 EMA should be below the Red 55 EMA
  • The MACD should be below the 0 line
  • The Stochastic (at least one of them) should be recently oversold at the 20 level, and should be crossed up
  • The Target is an Admiral Hourly PP

Stop-loss:

  • Stops go below the Admiral Pivot support (for longs) or above the Admiral Pivot resistance (for shorts).

 An Example for Short Entries - EUR/USD M5 Chart

Depicted: An Example for Short Entries - EUR/USD M5 Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

An Example for Long Entries - GBP/JPY M5 Chart

Depicted: An Example for Long Entries - GBP/JPY M5 Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.


In the context of scalping, these are one of the best MACD settings for day trading. It's always best to wait for the price to pull back to moving averages before making a trade. Bear in mind that the Admiral Pivot will change each hour when set to H1. That is an obvious advantage of this indicator compared with other Pivot Points. H1 Pivot is best used for M5 scalping systems.


MACD Breakouts

The MACD breakout is used to confirm Admiral Pivot breakouts in the trend direction. For this breakout system, with the best MACD settings for day trading, the MACD can be used as a filter and as an exit confirmation.

Indicators:

  • Admiral Pivot (D1) (requires MT4SE)
  • 50 exponential moving average (50 EMA)
  • 200 exponential moving average (200 EMA)
  • MACD indicator (12, 26, 9)

Timeframe: H1

Currency pairs

: EUR/USD, GBP/USD, AUD/JPY, GBP/JPY, USD/CHF, NZD/USD, AUD/USD

Take breakout trades only in the trend direction. The trend is identified by 2 EMAs. The trend is up if the 50 EMA is higher than the 200 EMA. The trend is down if the 50 EMA is lower than the 200 EMA.

Long trades:

  • The trend is up (50EMA >200EMA), the MACD histogram is above the 0 line, and the candle closes above the Pivot Point.

Short trades:

  • The trend is down (50EMA <200EMA), the MACD histogram is below the 0 line, and the candle closes below the Pivot Point.

Targets and exits:

  • For long trades, exit when the MACD goes below the 0, or with a predetermined profit target (the next Pivot point resistance).
  • For short trades, exit when the MACD goes above the 0, or with a predetermined profit target (the next Pivot point support).

You can move the stop-loss in profit once the price makes 12 pips or more.

Stop-loss:

  • The Stop-loss is placed above or below the entry candle (aggressive stop loss) or above or below the support or resistance (conservative stop loss).

Depicted: AUD/JPY Hourly Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Depicted: GBP/USD Hourly Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.


Effective Combo with Admiral Keltner Indicator

This strategy uses the following indicators applied on the chart:

  • Bollinger Bands®: Length 20, Standard Deviation 2
  • Admiral Markets Keltner (MT4SE with default settings)
  • MACD (12,26,9)
  • Admiral Pivot (has variable settings, which is explained below)

With both Bollinger Bands®, Admiral Keltner, and the MACD indicators, you should use the default settings that are used on the vast majority of trading platforms. These will be the best MACD settings for day trading in this regard. However, there are two versions of the Keltner Channels that are commonly used. Admiral Keltner is possibly the best version of the indicator in the open market, as the bands are derived from the Average True Range (ATR).


Consider only taking a Bollinger Bands® with Admiral Keltner breakout strategy trade when both the upper, and lower Bollinger Bands® go inside the Keltner Channel, with the MACD confirmation. The yellow highlights (in the graph below) shows examples of Bollinger Bands ® (green lines) going inside the Keltner Channel (red lines). At those zones, the squeeze has started.


However, we still need to wait for the MACD confirmation.

Depicted: GBP/JPY M30 Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.


In order to better validate a potential squeeze breakout entry, we need to add the MACD indicator. After plotting Bollinger Bands and MACD on our charts (both with default settings), we must wait for a contraction on the bands and MACD confirmation. When Bollinger Bands® (both green lines) start to come out of the Keltner Channel (red lines), the squeeze has been released, and a move is about to take place.


Wait for a candle that breaks above or below the bands, as a buy or sell trade trigger confirmed by the MACD.


Bollinger Bands® and Keltner Channels inform you when the market is transitioning from lower

volatility to higher volatility. Using these two indicators together is stronger than only using a single indicator, whereas both indicators should be used together. In this trading method, the MACD is used as a momentum indicator, filtering false breakouts.


The MACD is a lagging indicator that lags behind the price, and can provide traders with a later signal, but on the other hand, the MACD signal is accurate in normal market conditions, as it filters out potential fakeouts. With the best MACD settings for day trading, using it as a signal in this regard can be highly beneficial.


Trade Trigger

Depicted: EUR/USD Hourly Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.


Buy:

  • When a squeeze is formed, wait for the upper Bollinger Band to cross upward through the upper Keltner Channel, and then wait for the price to break the upper band for an entry long.
  • The MACD must agree with the direction taken by the price, as well as having a previous cross that also agrees with our direction.

Sell:

  • When a squeeze is formed, wait for the lower Bollinger Band to cross through the downward lower Keltner Channel, and wait for the price to break the lower band for an entry short.
  • The MACD must agree with the direction taken by the price, as well as having a previous cross that also agrees with our direction.

Another example is shown below. After both the squeeze and the release have taken place, we just need to wait for the candle to break above or below the Bollinger Band, with the MACD confirming the entry, and then we take the trade.

Depicted: AUD/USD Hourly Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.


Recommended time frames for the strategy are M30-D1 charts. The strategy can be applied to any instrument. Intraday breakout trading is mostly performed on M30 and H1 charts. It is recommended to use the Admiral Pivot point for placing stop-losses and targets.


A stop-loss for buy trades is placed 5-10 pips below the Bollinger Band middle line, or below the closest Admiral Pivot support, while a stop-loss for short trades is placed 5-10 pips above the Bollinger Band middle line, or above the closest Admiral Pivot support.


Target levels are calculated with the Admiral Pivot indicator. For an M30-H1 chart, we use daily pivots, for H4 and D1 charts, and Weekly pivots. Both settings can be changed easily in the indicator itself.

Depicted: GBP/AUD Hourly Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.


MACD Patterns

When we apply 5,13,1 instead of the standard 12,26,9 settings, we can achieve a visual representation of the MACD patterns. These patterns could be applied to various trading strategies and systems, as an additional filter for taking trade entries. It is argued that, the best MACD setting for a MACD pattern is 5,13,1.


MACD Bullish SHS

This is a Bullish SHS (Inverted Head and Shoulders pattern) that marks a reversal, and a possible turn to an uptrend. A possible entry is made after the pattern has been completed, at the open of the next bar.

MACD Bearish SHS

This is a Bearish SHS pattern (Head and Shoulders) that marks a reversal and a possible turn to an uptrend. A possible entry is made after the pattern has been completed, at the open of the next bar.

MACD Bullish Continuation

A bullish continuation pattern marks an upside trend continuation. First, the MACD makes a downside turn from point A, marking a retracement. Subsequently, when point A is broken by the MACD histogram, it is a signal for a long entry.

MACD Bearish Continuation

A bearish continuation pattern marks an upside trend continuation. First, the MACD makes an upside turn from point A, marking a retracement. Subsequently, when point A is broken by the MACD histogram, it is a signal for a short entry.

MACD Bullish 0 Line Rejection

When the MACD comes down towards the Zero line, and turns back up just above the Zero line, it is normally a trend continuation move. Points A and B mark the uptrend continuation.

MACD Bearish 0 Line Rejection

When the MACD comes up towards the Zero line, and turns back down just below the Zero line, it is normally a trend continuation move. Points A and B mark the downtrend continuation.


Depicted: Examples As Seen On The Charts - GBP/JPY Hourly Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.

Depicted: GBP/JPY Hourly Chart - Disclaimer: Charts for financial instruments in this article are for illustrative purposes and do not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.


Bear in mind that the best time frame for the MACD patterns is H4. By using MACD the right way, you should hopefully empower your trading knowledge and bring your trading to the next level! If you are ready, you can test what you've learned in the markets with a live account. If you need some practice first, you can do so with a demo trading account. Demo trading accounts enable traders to trade in a risk-free trading environment, whereby traders use virtual funds, so that their capital is not at risk.


MACD and Stochastic: The Double Cross Strategy

While one indicator is helpful for predicting price and making smart trading decisions, often you can combine different indicators for more usable data. Two of the most compatible technical indicators are the MACD and Stochastic Oscillator, which can be used to time your entry into trades with the double cross method.


Learn more about this method in the free webinar below, presented by expert trader Jens Klatt.


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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.