- Upsurge's Newsletter
- Posts
- MACD Indicator Trading Strategy
MACD Indicator Trading Strategy
A positional trading strategy using MACD (with example) →
Hey there 👋🏼
In today’s edition, we’ll talk about an indicator that is created by combining 2 types of moving averages - the MACD.
Read on to learn how the indicator is constructed & how it can be used for an effective positional trading strategy.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/4ce3eb9a-45e3-4604-8a14-5f66a0d6eddc/macd_positional__1_.png?t=1703765821)
What is MACD?
Moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of a stock’s price.
The ‘MACD line’ is the difference between a stock’s 26-day and 12-day exponential moving averages (EMA). A 9-period EMA of the MACD line is also plotted, known as the ‘signal line’. It can be interpreted as follows:
A buy signal is generated when the MACD line crosses above the signal line.
A sell signal is generated when the MACD line crosses below the signal line.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/9410b3d7-30f9-4c56-8030-113cb49effc1/Divider_Candles.png?t=1703594759)
Using MACD for Positional Trading
Combining the MACD with RSI and a 20-period EMA creates a good positional trading strategy, guided by the following rules ⬇️
Entering a TradeAn entry is triggered when the following conditions are met on a weekly or monthly timeframe: > The price should be above the 20-period EMA, and the EMA should preferably be acting as a support > A bullish MACD crossover should be seen > The RSI should be crossing over/above 50 | Booking ProfitsConversely, a position can be exited when the following conditions are seen: > The price should be below the 20-period EMA, and the EMA should preferably be acting as a resistance > A bearish MACD crossover should be seen > The RSI should be crossing under/below 50 |
It’s prudent to look for bullish/bearish candlestick patterns as a confirmation along with the above signals before entering/exiting a trade.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/05f6ffd9-ce72-4c47-b428-16ba64d469ad/Divider_2.png?t=1701261010)
Example - Positional Trade in M&M
You can see how in the following chart, the price is above the 20-period EMA, a bullish MACD crossover is seen (highlighted in orange), and the RSI has crossed above 50 (pointed with purple arrow).
A bullish engulfing pattern forming after a few consolidating doji candles (highlighted in blue) confirms an entry for a fresh uptrend ⬇️
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/65c14942-987a-4a98-b8ab-014805448985/image.png?t=1703760093)
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/55aacb2a-5189-4fb3-b21c-2e00726eb588/Divider_Candle%2BLines.png?t=1701414064)
Learn various indicators & effective strategies in Mr. Khagesh Agarwal’s Momentum Trading Course.
Use “STOCK10” for a 10% discount & get the course for just ₹359
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/1bc20038-37ab-4145-ba5f-3edf2ff15e60/Divider_Upsurge_Logo.png?t=1701665427)
Happy learning,
Upsurge.club
Reply