The MACD (shown below) can be used in both trends and ranges if used properly. This is one of the few tools that will work well in both types of markets. If I could only have one technical indicator outside of trend lines/support/resistance, this would be it.

There are several ways to use the MACD indicator. In up trends, you’ll only take buy signals as the price is also somewhat near the uptrend line. All of this will be illustrated in a visual below. However, let’s go into how to read the signals more.

When the MACD lines go downward, then cross and turn upward, you have a MACD buy signal. You can get a head jump on the MACD lines crossing many times by using the Histogram bars. When the lines are heading down and the lines look like they are attempting a cross but haven’t yet, you can look to the histogram bars for a head jump on the actual signal. When the MACD is wanting to turn upward and the red histogram bars start to get less negative (meaning they are growing shorter), then you can try to buy ahead of the signal (crossing).

When the MACD lines are trying to turn down, you can look to the black lines to start growing shorter to get a quicker entry on the MACD signal lines. This will help you sell in a more timely fashion.





In downtrends you’ll only take sell signals (to sell short) near the downtrend line. When the MACD lines go upward, cross, then turn downward, you have a sell or sell short signal.



In ranges, you can take both signals equally.



There are two more ways in which the MACD can be used. One is the MACD zero line and the other is divergence. The MACD zero line is where the histogram flips from black to red and back to black. When the MACD is below the zero line, it’s generally bearish. When the MACD is above the zero line, it’s generally considered bullish. See the example below. I’ve shown where the zero line is by highlighting it in yellow.



Divergence is where the price goes in one direction but the MACD goes in another direction. While this isn’t a trading signal in and of itself, it can be of great help. When the stock breaks in the direction that the divergence suggested, and closes beyond the trend line, then you have a signal to trade off of. See the examples of divergence below. The red lines point to one set of divergences while the blue lines point to a second set of divergences. As you can see, the MACD can be very useful in many ways and in trends or ranges.



Just to recap the MACD, there are several ways it can trigger signals:
1. The lines crossover (MACD line crosses the signal line)
2. Going above/below the zero line
3. Divergence with price confirming

To recap: The best technical indicators are firstly trend lines/support/resistance/volume. After that would come the versatility of the MACD. It can be left on the chart at all times. Use only buy signals in the uptrend and sell signals in the downtrend. Use both signals in a range.

In Trends use 2-3 of the following maximum:

1. Trend lines
2. Moving Averages
3. MACD (buys in uptrend or sells in downtrend)
4. ADX (above 30)
5. PSAR (for stops in strong trends) OR
6. ATR levels for stops


In Ranges, use 2-3 of the following maximum:

1. Support/Resistance
2. MACD – both buy and sell signals
3. Bollinger Bands
4. RSI
5. Slow Stochastics
6. ADX below 30
7. ATR levels for stops