MACD Trading Strategy: 5 Ways to Trade MACD with Clear Rules

Key Takeaways

• A MACD trading strategy is a set of rules that uses MACD signals to define the entry, filter, stop loss and exit.
• The signal line crossover strategy buys when the MACD line crosses above the signal line and sells when the MACD line crosses below it.
• The zero line crossover strategy gives fewer false signals than the signal line crossover, but its entries come later in the trend.
• Bullish divergence and bearish divergence warn that a trend may reverse, so traders wait for a confirming crossover before entering a trade.
• The 200 EMA trend filter allows buy trades only when the price is above the 200 EMA and sell trades only when the price is below it.
• MACD strategies fail most often in a sideways market, so every MACD trade needs a stop loss and every strategy needs to be backtested first.

What Is a MACD Trading Strategy and How Does It Work?

A MACD trading strategy turns MACD signals into fixed rules, so a trader knows in advance what to do when the MACD line, signal line or zero line gives a signal.

MACD is a trend-following momentum indicator created by Gerald Appel in the late 1970s. The MACD line is the 12-period exponential moving average (EMA) minus the 26-period EMA, the signal line is a 9-period EMA of the MACD line, and the histogram is the MACD line minus the signal line. The What Is MACD guide explains how to read each component of MACD in detail.

Traders use the same MACD strategy rules on forex pairs such as EUR/USD, as well as on stocks, indices and commodities. Every MACD trading strategy has four parts: an entry signal, a filter that screens out weaker trades, a stop loss and an exit.

The simplest MACD strategy uses the signal line crossover.

MACD Signal Line Crossover Strategy

The signal line crossover strategy buys when the MACD line crosses above the signal line, called a bullish crossover, and sells or shorts when the MACD line crosses below the signal line, called a bearish crossover.

• Enter a buy trade on a bullish crossover, or enter a sell trade on a bearish crossover.
• Filter the signals by taking a bullish crossover that forms below the zero line, or a bearish crossover that forms above it, because many traders consider these crossovers stronger.
• Place the stop loss just beyond the most recent swing low for a buy trade (the lowest point before the price turned upwards) or beyond the most recent swing high for a sell trade.
• Exit the trade on the opposite crossover, or when the price reaches the stop loss.
• The main weakness of the signal line crossover strategy is that it gives the most signals, so it produces many false signals in a sideways market.

A slower version of the same approach uses the zero line.

MACD Zero Line Crossover Strategy

The zero line crossover strategy buys when the MACD line crosses above the zero line and sells or shorts when the MACD line crosses below the zero line. A MACD line above zero means the 12-period EMA has moved above the 26-period EMA.

• Place the stop loss beyond the most recent swing low for a buy trade, or swing high for a sell trade.
• Hold the trade until the MACD line crosses back over the zero line, or until the price reaches the stop loss.
• The main weakness of the zero line crossover strategy is late entries, because the MACD line reaches zero only after part of the trend has already played out.

The zero line crossover is slower than the signal line crossover, so it gives fewer signals and fewer false reversals, and it works best in a strong trend. The divergence strategy looks for a warning before a trend reverses.

MACD Divergence Strategy

The divergence strategy watches for the price and MACD moving in opposite directions as a warning that a trend may reverse, and the divergence itself is never the entry signal.

• Bullish divergence forms when the price makes a lower low while MACD makes a higher low.
• Bearish divergence forms when the price makes a higher high while MACD makes a lower high.

• Wait for confirmation from a signal line crossover in the new direction, or from a reversal candlestick, before entering a divergence trade.
• Place the stop loss just beyond the swing low that formed the bullish divergence, or beyond the swing high that formed the bearish divergence.
• Use higher timeframes where possible, because divergence on a 4-hour or daily chart is usually more reliable than divergence on a 5-minute or 15-minute chart.

In a strong trend, divergence can appear several times before the price reverses. Hidden divergence, by contrast, suggests a trend may continue. In an uptrend, hidden divergence forms when the price makes a higher low while MACD makes a lower low, and the reverse pattern in a downtrend suggests the downtrend may continue.

Divergence often appears first in the histogram.

MACD Histogram Strategy

The MACD histogram strategy uses the size of the histogram bars to assess momentum before the MACD line and the signal line cross. Growing bars mean momentum is building, and longer bars mean a stronger signal. Shrinking histogram bars warn that momentum is fading and a crossover may occur, often after the bars form a hump that peaks and then falls.

• Watch the bars below zero during a pullback in an uptrend, and buy when the histogram moves above the zero line, because that move represents the bullish crossover.
• Exit or tighten the stop loss when the histogram bars above zero start to shrink during a buy trade.
• The main weakness of the histogram strategy is that shrinking bars do not always lead to a crossover.

All four MACD strategies work better when you trade only in the direction of the broader trend.

MACD and 200 EMA Trend Filter Strategy

The 200 EMA trend filter strategy uses the 200-period exponential moving average (200 EMA) to decide which trading direction is permitted and uses MACD to time the entry.

1. Check the trend first, and look for buy trades only when the price closes above the 200 EMA, or sell trades when the price closes below it.
2. Wait for the entry in an uptrend until the MACD line dips below the zero line and then makes a bullish crossover, and enter while the price remains above the 200 EMA. Sell trades use the reverse rule.
3. Place the stop loss beyond the recent swing low for a buy trade, or the recent swing high for a sell trade. Some traders instead use a multiple of the average true range (ATR), which measures typical candle size.
4. Set the exit at a fixed risk-reward ratio, often 1:1.5 or 1:2, or on the opposite crossover.

Traders commonly use the 200 EMA trend filter on 30-minute, 1-hour or daily charts, and these rules are common practice, not a guarantee of a winning trade.

The 200 EMA trend filter fails when the price keeps crossing back and forth over the 200 EMA, so avoid trades until the price holds on one side. Comparing the five MACD strategies side by side shows which one suits each market.

Comparing the Five MACD Strategies

Each MACD strategy involves a trade-off between speed and false signals, so the right MACD strategy depends on the strength of the trend and the timeframe you trade.

Many traders combine one entry strategy, such as the signal line crossover, with the 200 EMA trend filter, because the 200 EMA trend filter removes trades against the broader trend. MACD signals also become stronger when another indicator agrees.

How to Combine MACD With Other Indicators

Pairing MACD with an indicator that measures something different, such as overbought and oversold levels, volume or price levels, helps filter out false signals. Most traders also check candlesticks and support and resistance before acting on a MACD signal.

MACD and RSI Strategy

In the MACD and RSI strategy, MACD shows the direction of the trend and its momentum, while the relative strength index (RSI) shows when the price has moved too far. RSI, developed by J. Welles Wilder, moves between 0 and 100 and is traditionally interpreted as overbought above 70 and oversold below 30, giving traders the fixed levels that MACD does not have.

Waiting for both RSI and MACD to agree filters out more false signals, but the MACD and RSI entry often comes later than an entry based on MACD alone.

MACD and Money Flow Index Strategy

The money flow index (MFI) adds volume to a MACD strategy, because MFI is an oscillator ranging from 0 to 100, calculated using both price and volume. MFI below 20 indicates oversold conditions, while above 80 indicates overbought conditions. When MFI shows oversold conditions, wait for a bullish crossover on MACD before buying, and when MFI shows overbought conditions, wait for a bearish crossover before selling. MFI needs volume spikes to reach these levels, so the MACD and MFI strategy gives fewer signals. In spot forex, volume is tick volume from your broker, because forex has no central exchange.

MACD and Relative Vigor Index Strategy

The relative vigor index (RVI) is a momentum oscillator that compares the closing price with the trading range and smooths the result with a simple moving average (SMA). RVI rises as a bullish trend gains strength. In the MACD and RVI strategy, wait until the MACD line crosses the signal line and RVI crosses its own signal line in the same direction, then trade in that direction.

MACD and Fibonacci Retracement Strategy

To use MACD with Fibonacci retracement, draw the Fibonacci retracement tool on a clear trend, then use a MACD crossover at the 38.2%, 50% or 61.8% level to confirm an entry in the direction of the trend. These levels often act as support, where declines tend to stop, or resistance, where rises tend to stop.

• In an uptrend, buy on a bullish crossover after the price pulls back to a key level, with the stop loss beyond that level or the swing low.
• In a downtrend, sell on a bearish crossover after the price rises back to a key level, with the stop loss beyond that level or the swing high.

MACD and Trend Line Strategy

To use MACD with a trend line, draw the trend line on the price chart first, then take only the MACD crossovers that point in the same direction as the trend line.

• In an uptrend, take bullish crossovers while the price holds above the rising trend line.
• In a downtrend, take bearish crossovers while the price holds below the falling trend line.

A trend line break accompanied by MACD divergence can be an early sign of a reversal. A broken trend line does not always indicate a reversal, so wait for a crossover in the new direction. A complete trade example shows how the rules fit together.

Worked Example of a MACD Trading Strategy

A buy trade on EUR/USD using the 200 EMA trend filter strategy on a 1-hour chart shows the four parts of a MACD strategy in action. The prices are hypothetical examples to illustrate the rules, not actual historical data or a forecast.

1. Check the trend first. EUR/USD trades at 1.0850, above the 200 EMA at 1.0780, so only buy trades are allowed.
2. Wait for MACD to dip below the zero line as EUR/USD pulls back while remaining above the 200 EMA.
3. Enter on the bullish crossover that forms below the zero line, with a buy at 1.0855.
4. Place the stop loss at 1.0825, just below the recent swing low, risking 30 pips. A pip on EUR/USD is 0.0001.
5. Set the take profit at 1.0915 for a 1:2 risk-reward ratio, aiming to make 60 pips for the 30 pips at risk.
6. Let the stop loss or take profit close the trade, for a 60-pip gain at 1.0915 or a 30-pip loss at 1.0825.

With a 1:2 risk-reward ratio, a trader who wins one trade in three still breaks even before trading costs. The EUR/USD trade would have been invalid if the price had closed below the 200 EMA before the crossover, or if the MACD line had not dipped below the zero line first.

Trying these rules on a live chart starts with adding MACD to a trading platform.

How to Add MACD on MT4 and MT5

MACD is built into MetaTrader 4 (MT4) and MetaTrader 5 (MT5), so adding MACD to a chart takes three steps.

1. Open the chart for the market you want to trade, such as EUR/USD.
2. Open the Insert menu and choose Indicators, then Oscillators, then MACD.
3. Keep the default settings of 12 for the fast EMA, 26 for the slow EMA and 9 for the MACD SMA, then click OK.

MT4 and MT5 display MACD differently from most charting platforms. On MetaTrader, the MACD line appears as bars, and the signal line is a dotted line calculated as a 9-period simple moving average (SMA) of the MACD line, whereas most platforms use an EMA.

On MT4 and MT5, a signal line crossover occurs when the ends of the MACD bars cross the dotted signal line, and a zero line crossover occurs when the MACD bars move from one side of zero to the other. MetaTrader does not display the histogram by default, so the histogram strategy needs a custom MACD indicator.

With MACD on the chart, the next choice is which settings to use.

Best MACD Settings for Day Trading and Swing Trading

No single MACD setting is best, because faster settings react sooner but give more false signals.

For day trading, 8, 17 and 9 is a common choice on 5-minute and 15-minute charts, and 5, 35 and 5 is used on very fast 1-minute charts for scalping, which involves making many small trades within minutes. The 3, 10 and 16 setting comes from trader Linda Raschke's 3/10 oscillator, which uses simple moving averages (SMAs) for all three lines. Entering 3, 10 and 16 into a standard MACD, which uses EMAs, only approximates the Raschke version.

For swing trading, which means holding trades for days or weeks, the default 12, 26 and 9 on 1-hour, 4-hour or daily charts is the usual choice, and some day traders retain the default settings too.

Test any new MACD setting on a demo account before using it with real money. The What Is MACD guide explains what the numbers 12, 26 and 9 mean. Even with the right settings, MACD strategies fail in some markets.

Why MACD Strategies Fail and How to Manage Risk

MACD strategies fail most often in a sideways market, because the MACD line keeps crossing the signal line and the zero line when there is no trend to follow.

MACD also lags behind the price, because it is calculated using moving averages of past prices, so every MACD signal comes after the trend has started. In a strong trend, divergence can repeat several times before the price reverses.

MACD has no single success rate. Win rates quoted in videos come from limited tests on one market and one period. Every MACD trade needs three risk rules.

• Use a stop loss on every trade, bearing in mind that a normal stop loss can be executed at a worse price when the market gaps or moves quickly.
• Size each position so that one losing trade risks only a small portion of the account.
• Choose a timeframe that matches the strategy and ignore MACD signals while the market is sideways.

No MACD strategy is risk-free. The What Is MACD guide covers the broader limitations of MACD. The safest way to find out whether a MACD strategy suits you is to test it first.

How to Backtest a MACD Strategy Before Trading Live

Test a MACD strategy on past data first, then on a demo account with live prices, before trading the strategy with real money.

• Write down the rules for the entry, filter, stop loss and exit.
• Backtest the rules on past charts that include both trending and sideways periods, and record the win rate, average win and loss, and drawdown, which is the largest decline in the account value from a peak.
• Forward-test on a demo account with live prices and virtual money.

Backtesting results come from past data and never show what will happen next. The backtesting guide covers each step in more detail.

FAQs

What Is the Best MACD Trading Strategy?

No single MACD trading strategy is best, because the right strategy depends on the trend and your timeframe. Many traders start with the signal line crossover combined with the 200 EMA trend filter, since the 200 EMA trend filter keeps every trade in the direction of the broader trend. Backtest any MACD strategy before using it with real money.

What Is the Success Rate of a MACD Strategy?

A MACD strategy has no fixed success rate. MACD results depend on the market, timeframe, settings, filters and risk rules, and performance declines in a sideways market. Win rates quoted in videos come from limited tests, so check any MACD strategy with your own backtesting before trusting a figure.

Which Indicator Works Best With MACD?

No single indicator works best with MACD for every trader. RSI is the most common pairing because it shows the overbought and oversold levels that MACD does not have. A 200 EMA establishes the trend direction, and support and resistance or candlesticks help confirm a MACD entry.

What Is a MACD Buy Signal?

A MACD buy signal is one of three bullish signals on the MACD indicator.

• The MACD line crosses above the signal line.
• The MACD line crosses above the zero line.
• A bullish divergence forms between the price and MACD.

MACD buy signals are more reliable in an uptrend, for example when the price is above the 200 EMA.