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 set the entry, the filter, the stop loss and the 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 turn, so traders wait for a confirming crossover before entering a trade.
• The 200 EMA trend filter allows buy trades only when price is above the 200 EMA and sell trades only when 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 backtesting 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, the signal line or the 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 MACD part in full.

Traders use the same MACD strategy rules on forex pairs such as EUR/USD, and on stocks, indices and commodities. Every MACD trading strategy has four parts. An entry signal, a filter that skips 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 treat those crossovers as stronger.
• Place the stop loss just beyond the most recent swing low for a buy trade (the lowest point before price turned up) or beyond the most recent swing high for a sell trade.
• Exit the trade on the opposite crossover, or when 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 idea 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 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 gone.

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 turns.

MACD Divergence Strategy

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

• Bullish divergence forms when price makes a lower low while MACD makes a higher low.
• Bearish divergence forms when 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 or 15 minute chart.

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

Divergence often shows up first in the histogram.

MACD Histogram Strategy

The MACD histogram strategy uses the size of the histogram bars to judge 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 come, 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 flips above the zero line, because that flip is 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 only trade with the bigger 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 direction is allowed and uses MACD to time the entry.

1. Check the trend first, and only look for buy trades when price closes above the 200 EMA, or sell trades when 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 price stays above the 200 EMA. Sell trades use the mirror 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 use a multiple of the average true range (ATR), which measures typical candle size, instead.
4. Set the exit at a fixed risk reward ratio, often 1 to 1.5 or 1 to 2, or on the opposite crossover.

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

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

Comparing the Five MACD Strategies

Each MACD strategy trades speed against false signals, so the right MACD strategy depends on how strong the trend is and which 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 bigger trend. MACD signals also get 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 price is stretched too far. RSI, developed by J. Welles Wilder, moves between 0 and 100 and is traditionally read as overbought above 70 and oversold below 30, which gives traders the fixed levels 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 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 from 0 to 100 built from both price and volume. MFI below 20 is oversold and above 80 is overbought. When MFI shows oversold, wait for a bullish crossover on MACD before buying, and when MFI shows overbought, wait for a bearish crossover before selling. MFI needs volume spikes to reach those levels, so the MACD and MFI strategy gives fewer signals. On 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 trend direction. Those levels often act as support, where falls tend to stop, or resistance, where rises tend to stop.

• In an uptrend, buy on a bullish crossover after 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 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 the same way as the trend line.

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

A trend line break that comes with MACD divergence can be an early sign of a reversal. A broken trend line is not always a reversal, so wait for a crossover in the new direction. One full trade 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 at work. The prices are a made up example to show the rules, not real past data and not 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 staying 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 under the recent swing low, which risks 30 pips. A pip on EUR/USD is 0.0001.
5. Set the take profit at 1.0915 for a 1 to 2 risk reward ratio, aiming to make 60 pips for the 30 pips at risk.
6. Let the stop loss or the take profit close the trade, for a 60 pip gain at 1.0915 or a 30 pip loss at 1.0825.

With a 1 to 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 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 comes 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 draw 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, where most platforms use an EMA.

On MT4 and MT5, a signal line crossover happens when the ends of the MACD bars cross the dotted signal line, and a zero line crossover happens when the MACD bars flip from one side of zero to the other. MetaTrader does not draw 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 and 15 minute charts, and 5, 35 and 5 is used on very fast 1 minute charts for scalping, meaning 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. Typing 3, 10 and 16 into a standard MACD, which uses EMAs, only comes close to 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 keep the default too.

Test any new MACD setting on a demo account before using it with real money. The What Is MACD guide explains what the 12, 26 and 9 numbers 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 price, because MACD is built from 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 price turns.

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

• Use a stop loss on every trade, knowing that a normal stop loss can fill at a worse price when the market gaps or moves fast.
• Size each position so that one losing trade risks only a small share of the account.
• Pick a timeframe that matches the strategy and skip MACD signals while the market is sideways.

No MACD strategy is risk free. The What Is MACD guide covers the wider limits of MACD. The safest way to find out if a MACD strategy suits you is to test the strategy 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 the rules down for the entry, filter, stop loss and exit.
• Backtest the rules on past charts that include both trending periods and sideways periods, and record the win rate, the average win and loss, and the drawdown, which is the biggest drop in the account from a high.
• 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 plus the 200 EMA trend filter, since the 200 EMA trend filter keeps every trade in the direction of the bigger 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 drop in a sideways market. Win rates quoted in videos come from narrow tests, so check any MACD strategy with your own backtesting before trusting a number.

Which Indicator Works Best With MACD?

No single indicator works best with MACD for every trader. RSI is the most common pairing because RSI shows the overbought and oversold levels MACD does not have. A 200 EMA sets 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 price and MACD.

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