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MACD Crossover
MACD crossover is a lagging indicator.
It is a moving average convergence divergence indicator.
It is a trend following indicator, and it can represent as MACD.
MACD crossover uses two moving averages, 12 EMA and 26 EMA.
By subtracting 12 EMA from 26, EMA will be able to calculate MACD.
MACD also act as a momentum oscillator, and it is a beneficial indicator to know about trend and momentum.
The two moving averages used for the calculation of MACD crossover are slow moving average and fast moving average.
The default settings in the trading view platform are 12. 26 and 9.
These settings can change on a time management frame, and I always recommend using the default settings given in the software.
In MACD indicator, as shown in the image, the blue line is the first line, that is MACD, the orange line is the signal line, the green bars and the red bars above and below the zero line or central line are histogram.
MACD oscillates above and below the central line.
When MACD crossover above the zero lines, then the sentiments are on the bullish side, and the trend will change into an uptrend.
When the MACD crossover below the zero lines, the sentiments are towards the bearish side, and the trend will change into a downtrend.
How to use MACD crossover for our buying and exit position?
We should find our stock or index trend, whatever you are trading for, a middle time frame chart.
When a MACD line crosses above the zero line or central line, we get a buying signal.
When the blue line that is the MACD line crosses above the signal line, the orange line should be above zero lines (central line), we get a buying signal.
When the blue and orange lines converge, the MACD line and the signal line join, and the histogram also falls.
That is the exit signal.
When the blue MACD line and the orange signal line are making the crossover above the central line, I recommend not to take a short sell position.
Because when the prices are in an uptrend, we should not make a counter trade by taking a short position.
When a MACD line crosses below the zero line or central line, we get a selling signal.
When the blue line that is the MACD line crosses below the signal line, the orange line should be below zero lines (central line), we get a selling signal.
When the blue and orange lines converge, the MACD line and the signal line are joining, and the histogram also rises.
That is the exit signal in MACD crossover.
When the blue MACD line and the orange signal line are making the crossover below the central line, I recommend not to buying position.
Because when the prices are in a downtrend, we should not make a counter trade by taking a buy position.
Some people say that whenever the MACD crossover has occurred, we can enter the trade at that crossover and exit at the next crossover.
In that case, the trade probability will be very low and, you may get many bad and lost trades.
MACD crossover is a trend following indicator; MACD does not give a great signal in a ranging market.
It gives a great signal in a trending market and always trades in the direction of the trend, don’t go against the trend.
In the case of an uptrend market, if the price is above the trend line when a MACD indicator has given the buying signal, the movement towards the bullish side will be great.
In the case of a downtrend market, if the price is below the trend line when a MACD indicator has given the selling signal, the movement towards the bearish side will be great.
Combining RSI and Bollinger band indicators with MACD, the trade will be more accurate and potent.
We should never take a trade; using only one indicator, we should add 3 to four indicators to execute the perfect career.
Here are the indicators used to execute the perfect trade with MACD crossover.
RSI With MACD Crossover
RSI is a popular and widely used indicator.
RSI is a price following oscillator, and as the name indicates, it measures the relative strength of the stock.
RSI is one of my favorite Indicator.
RSI oscillates between 0 and 100 levels.
Its importanyt levels arev 70, 60, 50 ,40 , 30.
40 day RSI is a popular one; it will mainly check momentum and over-sold over-bought range.
One important thing to remember using RSI indicator, ranging market is different, and the trending market is different.
So, before analyzing the chart based on RSI, first, we must clarify the trend in place whether the market is in range or not; if we make a mistake in doing this, we will not be able to apply that particular indicator.
RSI is used to know over-bought and over-sold levels in the long-term or trending market.
When RSI is above 70 levels, the stock is considered overbought.
When RSI is below 30 levels, the stock is considered oversold.
RSI tells us whether the stock is trending up or trending down.
When RSI remains above 50, the stock shows an overall bullish trend, and when rsi remains below 50, the scrip is in the bearish trend.
RSI helps us take early entry and exit by showing the divergence signal between RSI and price.
When RSI falls below 30 levels and gives a positive breakout above 30, one can initiate a buying position.
When RSI breaks below 70, after retracing from above 70 levels, one should exit from the trade.
RSI is used to know momentum; though not primarily designed for it, RSI can indicate an increased rate in the trending market for remaining above and below certain levels in a more extended period.
In a ranging market, when RSI goes below 30 and takes support at 30, it allows buying, but in a trending market, one must not make a mistake to buy at bottoms because RSI may remain below 30 for an extended period.
In this situation, we do not get an exit on raising the price, and we will get stuck in a position for a long time.
We must never buy or sell based on the illusion that the stock is available at a low price.
When RSI remains below 30, bottoms had formed at a lot lower level than our expectation.
Now we will take an example and understand how rsi will help us in trading.
Early chart of nifty, and there are many uptrends and downtrends.
RSI is in the oversold range, and it was above 30 levels; now it crosses above 50 levels; this is a confirmation signal, we will buy when RSI crosses above 50 levels.
RSI is gone through the overbought range, which means below 70 is the over-bought zone, and below 30 is the oversold range.
When RSI crosses the 70 levels, then we should exit from our buying position.
In a ranging market, when RSI crosses 70 or faces resistance near 70 or 60, we can sell, or when RSI crosses down 30 or takes support near 30 or 40, we can buy, but in trending markets, when RSI crosses above 70, the momentum towards bullish side is strong, and a sharp up move can happen.
RSI doesn’t go below 70 and faces resistance from 70 again, and we can keep long.
My advice is that if RSI crosses above 30, we should wait for the confirmation signal of RSI to cross above 50.
If the price is facing resistance at the 70 level many times, we can sell the stock when it reaches up to the 70 levels.
When RSI is going oversold range, there it is facing support many times, we can buy that stock at the support level.
Whenever we get resistance at 70, we can sell, and every time we get support at 30, we can buy; this was the scenario when the market is in a sideways trend.
When the market is in trending mode when RSI is in the overbought range, we do not make any short sell position because the market is in a bullish way.
Bollinger Bands Trading Strategy On MACD crossover
Bollinger band will give the early signal, whether the market is moving towards the bullish side or bearish side.
If the Bollinger band is in a narrow position, that means contracting, and the signal is that market is in consolidation mode, so do not enter any trade while the market is in consolidation mode; wait for the scrip for picking movement.
The signal of whether the market is picking movement is, our indicator Bollinger band will expand, or it will show some expansion moment.
You can enter the trade after the expansion of the Bollinger band.
Remember Bollinger band will show whether the market is in bullish mode, consolidation mode, or bearish mode.
When the 5-minute candle has opened outside the Bollinger band, that trade will not be much effective.
Trade will be effective when the candle stays on the inner side of the Bollinger band.
I will trade when the candle is on the inner side of the Bollinger band.
I will avoid trading when the candle opens outside the Bollinger band.
In this indicators, why I am not representing moving average is because it is present in the MACD crossover indicator (moving average convergence/divergence).
I recommend large-cap trading stocks because an individual can’t manipulate the scrip, and the movement will be based on that stock’s news and financial status.
These Indicators may applicable to Nifty 50 scrips and other stocks.
All the above cases discussed are all probabilities; there are no sure shot points in the stock market.
I may confidently say that if you follow the above rules, you can get the most accurate trade on MACD crossover.
The trading view platform is the ocean of indicators and screeners also available in this platform.
Tools that can be helpful for trading are under one roof.
Screeners which are helpful for stock picking are available in the trading view platform.
For more accurate and profitable information you can contact us.
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