Many day traders have their own unique way of trading the markets. Technical indicators are used by many, but used differently depending on a trader’s methodology, market, and time frame. One strategy that is popular across the board is MACD Day Trading. MACD stands for “moving average convergence divergence”. This technical analysis tool is fairly simply and can be extremely effective if used properly. It measures the trend in price along with momentum.

The indicator is calculated using three exponential moving averages (EMA); 12, 25 and 9 periods. It’s the difference between the 12 and 25 period EMA. The signal line represents the 9 period EMA. The MACD moves within, above or below the signal line.

The MACD trading strategy is also based around the zero line. If MACD is greater than zero, it reflects a bullish trend. If MACD is lower than zero, this would be a bearish trend. A steeper sloping MACD pattern demonstrates more aggressive price movement, therefore, the stronger the momentum.An important MACD trading strategy would revolve around divergences. A divergence occurs when the MACD indicates a move in one direction, while price is moving in the other. Positive divergence occurs when price makes lower lows and MACD makes higher lows. Negative divergence occurs when price makes higher highs and MACD makes lower highs. Traders use this MACD trading strategy to indicate a reversal, or weakening of a trend.

MACD can also be analyzed by crossovers. The market will cross up and down through the signal line which can represent a potential for long or short trades.

Some traders rely very heavily on this indicator. Others, however, will not without confirmation from an array of other sources. Overall, the MACD indicator is very useful and valuable for direction in the markets. Learn to trade MACD and it could really boost confidence in trader decisions.