Best MACD Settings for Day Trading

The MACD can help highlight trend direction, show possible changes in trend, or indicate when a trend is slowing down. The MACD can also be used to generate trade signals.

The MACD includes two lines: one which is the MACD, and another called the signal line which is a slower-moving version of the MACD. When those two lines cross, it could be used as a trade signal.

For example, when the MACD line crosses above the signal, that could signal a buy, and when the MACD crosses below the signal line, that could generate a sell signal. I’ll explain why this is in the next section, but for now, here is an example of how these basic concepts work.

If you add the MACD indicator to your chart and then click on its settings, you will see three primary input fields. These are:

• Fast length
• Slow length
• Signal smoothing

These will likely already be filled in with the default settings of 12, 26, and 9 respectively. What the MACD line on the indicator is measuring is the distance between a 12 and 26-period moving average of the price movement.

If you were to plot a 12- and 26-period moving average on the chart and then measured the distance between these two averages, that is the reading the MACD is giving us at any moment in time.

The chart above has been zoomed in a bit and the cursor/vertical line (10:50 am) is showing a particular point in time. Looking at the top left, we can see the 26-period moving is at 171.38 and the 12-period is at 172.34. That’s a difference of 0.96.

If you look at the MACD reading for that moment (shown by the blue number), it says -0.9601, meaning the 12-period is below the 26-period moving average by $0.96. When the 12-period is above the 26-period, the MACD reading will be a positive number.

Looking at the chart above, you will also notice that when the blue MA 12 crosses below the red MA 26, the MACD indicator (blue) crosses below 0, because now the numbers are negative. If the MA 12 crosses above the MA 26, then the MACD will move into positive numbers, crossing above the zero line.

Some people also use the zero line for trading signals by buying when the price crosses above the zero line and selling when MACD crosses below it. This is equivalent to buying when the MA 12 crosses above or below the MA 26.

There is an extra line on the MACD indicator, colored orange in this case. It is called the signal line. It is simply a slower version of the MACD. In this case, it is a nine-period moving average of the MACD line. As mentioned in the prior section, when the MACD crosses the signal line, these can also be used as trade signals.

Generally, the default settings tend to work best across various time frames. As discussed before, that would involve using the 12, 26, and 9 settings.

Why is this? Each time frame, and each asset, may have parameters that work slightly better. But you are talking about infinite possible combinations, and the best combination on a 5-minute chart may not work as well on a 1-minute chart, or it may work well in one forex pair, but other pairs or stocks, for example.

Therefore, as a general guideline, the default setting is a good starting point. If you only trade a specific time frame, and only trade specific assets, then you may be able to customize the settings to work better for you. More on that in the next section.

If you trade various time frames, or you trade different assets (futures, currency pairs, stocks, CFDs, commodities, and so on) then it is probably best to use the default settings on all of them.

The simplest way to test settings is to pull up a chart of the asset with the chart time frame you trade. Apply a MACD to the chart and then test various settings to see which works better for you.

Before doing this, you will define how exactly how you are using the MACD, and what the specific requirements for entering and exiting trades are. This is all part of a document called the trading plan, which lays out how we trade.

Once you know how we will enter and exit trades, then you can test different MACD settings to see which produces the most profit, keep losses the smallest, or whatever metric you are aiming to improve.

Personally, I like to test manually. On a sheet of paper, I will write down all the profits and losses the strategy/parameters produced over the last 40 to 60 trading days (two to three months). If you only trade part of the day, only include profits and losses for the part of the day you actually trade.

This tells you if the strategy is profitable or not. If it is, you can do more testing and possibly chart trading the system either in a demo account, or with small amounts of capital. If it continues to work, increase the amount of capital used.

You can also continue to test other MACD settings to see if they produce better results using the same process. I like to do it manually so I see exactly what each trade looks like. It’s like practicing hundreds of trades before you even place an order.

There is also the option to test for the MACD settings using an automated trading program. Some websites allow you to test various MACD settings over years of data. Most of these sites or software cost a fee. Backtesting may also be included within your broker’s software or your charting platform. For example, TradingView has strategy backtesting capabilities.

There is positive divergence and negative divergence. Negative divergence, or bearish divergence, is when the price moves above its prior swing but the MACD is below its prior swing high.

It shows that momentum is potentially slowing, or at least that the current rise in price is not moving as rapidly as the prior rise. This is a potentially bearish signal.

Positive divergence, or bullish divergence, is when the price drops below its prior swing low, but the MACD is above its prior swing low. It shows selling momentum is slowing, or that the most recent drop is not at fast as the prior drop. This is a potentially bullish signal.

Divergence is an additional tool that can be used to fine-tune trading. For example, you may wish to see divergence before taking a trading signal. Divergence can (but not always) signal a reversal in the current trend. The following chart shows an example of both negative and positive divergence.

Can the MACD be used for day trading?

Yes, it can be, but keep in mind that day trading often involves capturing quick price moves. The MACD is based on moving averages, which can be slow to react to price changes. Therefore, the MACD may be suitable for capturing some trends during the day, but it may not be suitable for all day trading methods, such as scalping.

Which time frame is best for MACD intraday trading?

The MACD can be used on any chart time frame, such as the 1, 5, 15, or 30 minute intraday chart time frames. Before using the MACD, define how you will use it, and what your trade entry and exit protocols are. Then, test the MACD to make sure that it helps with implementing your strategy profitably.

What is the best MACD trading strategy?

The best MACD trading strategy is the one that works on your chart time frame with your asset, using the strategy you have defined. Since people will use the indicator in different ways, over different time spans, and in different markets, there is no single best strategy that will work for all of them.

Once you have defined the time frame and market you will trade, try out different MACD entry and exit methods to see which works best on historical charts. This will give you an idea if the strategy is worth possibly using with real capital.

Can the MACD be used for swing trading?

Yes, the MACD can be used on any chart time frame. For swing trading, using a daily chart is common, as the MACD will often produce trade signals every couple of weeks to several months. You can adjust the MACD settings to create longer-term or shorter-term trades.

Can the MACD be used for options trading?

Yes. Since options are based on an underlying market, the MACD can provide insights into the trends and potential reversals of the underlying market. Options trades can then be placed based on those insights.

Final Thoughts on Best Intraday MACD Settings

The MACD can be a useful tool, with many traders using it to highlight the trend, spot reversals, note weakening trends, and provide trade signals.

The best MACD settings for most day traders will be the default settings, although you can test different settings using your specific time frame and asset to see if you can find parameters that produce higher returns, more/fewer trades, smaller losses/drawdowns, or whatever trading metric you want to improve on.

There is nothing inherently predictive about the MACD. It is simply showing the distance between two moving averages. Used entirely on its own, the MACD may not be profitable on certain assets or time frames. However, it is possible to backtest and find ways to make the indicator profitable.

Divergence may also be useful for helping to determine which MACD trade signals to take, as well as highlighting when a trend may be slowing. Also, check out the stochastic oscillator technical indicator.