if you have been trading for a while you are likely familiar with the macd indicator but what so many Traders don't know is that you can change the settings of the macd to make it more effective and easier to use so in this video guys we are going to take a look at four macd settings that you can use to improve the effectiveness of the macd indicator we will take a look at these settings in a step-by-step Manner and talk about how they work and why you should use them okay guys let's not waste any
more time on this intro so without further Ado let's jump right into it [Music] all right guys so let's start this video off here by opening up a clean chart here in trading view right now as I'm speaking I'm looking at gold on a five minute time frame and let's start here by going up to the indicators Tab and we want to of course open our macd indicator which stands for moving average convergence Divergence so let's open this one up so as you can see now the macd indicator appeared here on the chart and this
video will not be about how the macd indicator works I have actually already made a long video about how the macd indicator works so if you want to learn more about the macd indicator I will make sure to leave a link to my video about that up in the corner in the eye of this video but as you know this video is all about the macd settings so now guys let's take a look at the first setting here of this video the first macd setting we will talk about here is something I learned in one
of my favorite trading books it's called The Art and Science of technical analysis is and this is the settings that is recommended here by Adam Grimes a Trader with more than 20 years plus of experience so guys now let's take a look at exactly what settings he uses so what we want to do here is that we want to go down to the macd indicator and we want to press here on the settings tab and you want to make sure that you are on the inputs tab right here and as you know if you have
watched my video about the macd indicator the macd line consists of two different lines we have the fast line and we have the Slow line and the normal settings for the macd is to have the fast length at 12 and the slow length at 26 but for this special macd settings we want to change the fast length to three and we do want to change the slow length here to 10. we also want to go down here to where it says signal smoothing and this is basically the signal line and this is a moving average
of the macd line for the signal smoothing here we do want to change this one to 16 for this specific settings and we also want to change both the oscillator moving average and the signal line to right now they are an exponential moving average but we want to change both of these to become a simple moving average so we change the oscillator and may type to SMA and we also want to change the signal line to an SMA as well so if you now take a close look at the macd indicator it can actually be
quite hard to see the difference so what I want to do now is that I want to open up the normal macd indicator once again so let's open up another macd indicator and now you can actually see that they indeed are a bit different so now the upper macd is the macd with the new settings and the lower macd is the normal macd settings and what you will be able to see here is that the new macd indicator will be able to react faster to price movements so what I mean by this well if you
take a close look at this movement right here we can see that the price went from going down here to moving up and if you take a close look at the Mac the indicators here you can see that the new macd with the new settings will turn positive you can see the histogram turns green here much faster than the previous macd and the same thing is also true when we start to see you know the price start to move down here once again you can once again here see that the macd with the new settings
turns red right here while for the for the normal macd we had to wait for two more candles in order for that for that macd to turn negative and so what we can clearly see here is that the new macd settings will react faster to price movements so this of course leads to the question does this mean that you know the new macd with the new settings is always better than the old macd and the unfortunate thing here is that when it comes to trading it's usually not a yes or no answer like that what
we do know is that the new macd reacts faster to price movements but at the same time because it reacts faster it will also give more false signals so you may of course Wonder in which scenarios is the new macd indicator better well since it reacts faster it makes more sense you know if you are a short-term Trader you maybe trade on the one minute time frame the five minute or the 15 minute time frame in these scenarios the faster macd does make more sense but if you are a longer term ad Trader then the
normal macd indicator might perhaps be the better option for you alright guys so the time has come for our second macd setting and in order to get to this setting for the macd this setting is actually not even available on the normal macd so what we have to do here is that we need to go up to the indicators Tab and we want to search for macd and then divergences or macd Divergence and we want to go down here to the indicator which says David Tech here and we do want to open up this indicator
and as you can see now a new indicator appeared here on the chart as for the actual settings of this new macd indicator they are actually very similar to the normal macd we can actually go here to the settings tab of this normal of this new macd indicator and we can see here that the fast length is still 12. the slow length is 26 and the signal smoothing is 9 and we are also currently using an exponential moving average for the oscillator type and exponential moving average for the signal line as well as you can
see that the settings here are similar to the normal macd but the main difference here is that this new macd indicator will automatically find divergences in the market and if you guys don't know what a Divergence is a Divergence is basically when we have the price going in One Direction but we have a momentum indicator such as the macd going in the other direction so as you can see right now we're looking at the gold and we're looking at a four hour time frame but as you can see right here the price prints one low
and then it printed a lower low but as you can see here the indicator we just recently open automatically predicted that the indicator so the macd line printed one low and then a higher low and you can also see that this indicator says that this is a bullish Divergence and a bullish Divergence indicates a potential reversal to the upside and as you can see after this Divergence appeared the price indeed started to go up so this right here is a is an amazing indicator so make sure if you want to to add it to your
to your trading tools once again we look a bit to the left here and now you can see that it says bar right here this is because this indicator just recently found automatically a bearish Divergence and a bearish Divergence is when we have the price printing one high and then a higher high while at the same time the macd prints one high and then a lower high this is what we call a bearish Divergence and indicates a potential reversal to the downside and you can see that after these Divergence appeared we indeed saw the price
starting to go down here alright guys so now we're ready to take a look at the third setting here for the macd and the for this one we want to open up the normal macd indicator so we go up here to the indicators Tab and we simply search for macd and we want to open up the normal moving average convergence Divergence and then we want to go here to the settings tab of the macd so press settings and what we now want to do this is pretty simple we want to move here to the Styles
tab of the macd indicator and we simply want to uncheck the macd line and uncheck the signal line this is all we need to do for this for these settings and then we want to press ok so as you can see now on the macd indicator we only see the histograms so the mountains here and The Valleys of the macd indicator are called histograms and these histograms are basically the difference between the signal line and the macd line I can just show you real quick let's open up the settings once again let's for a short
while you know choose the macd line and the signal line once again and you will actually see that the values here are the difference between these two lines so for example when we have a large difference between the lines you can see for example right here you can see the difference between the blue line and the orange line is a lot then we will have large mountains and when we have a large difference here on the downside like like we for example have right here you can see the difference between the orange line and the
blue line is a lot right here then you can see that we will have a deep valley so this marked this setting let's go back into the settings tab and shake the macd line and the signal line is basically if you are only interested here in the difference between the macd line and Signal line and this right here is actually how I usually have my macd because I think that one of the most interesting things we can know about the macd is is how strong is the momentum compared to the average and this is exactly
what the Peaks and valleys tells us about the price so the values here will give some very good indications about how strong is the momentum right now in the markets and to be able to understand momentum is something super useful and that you can use in so many trading strategies so this setting is a very useful one in my opinion alright guys so now we are ready to take a look at our fourth setting here and to be able to understand this setting I do want to open up yet another macd indicator so let's go
up here to the indicators Tab and let's search for macd and let's open up another moving average convergence Divergence to keep consistency between these indicators I also want to do the same thing as we did for settings three so let's unshake the macd line and the signal line for this new macd indicator we can also make them a bit larger here so you will be able to see so now guys let's use our top macd indicator here for the new setting so let's go up here to the settings tab of the macd we want to
go to the inputs tab here and we want to go down to here where it says source as you can see right now it says source and it says close this means that the macd will make its calculations based on the candle closes so it will take the data points only for where the price closed but we can actually change this setting so as you can see right now is close and you can choose if you want to to base the calculations on the Open high low or close but what you can also do is
that you can go down here to where it says ohlc4 and let's actually choose this option right here by choosing the ohlc4 the macd indicator will now take into account all the points on the candle so it will use the Open high low and close and that is what what ohlc4 means it will use all these data points to make its calculations so now we're ready to to press OK and you will probably see what I mean here to give you guys a good example of how this works I want you all to take a
very close look at these two candles right here you can see that both of these candles have very long Wicks here and remember that the bottom macd indicator only calculates based on the candle closes while the upper macd indicator will take into account both the candle closes but also the wick and as you can see because we have on this green candle right here a long lower week you can actually see that for the upper marketing indicator which uses the Wicks also in the calculations you can see that this part on the macd will be
higher than the previous part but if you look down here to the normal macd you can see that the exact same bar of the macd indicator will be lower than the previous bar I really hope you can see this for the upper macd the previous bar is lower but for the lower macd the previous bar is higher so you can see that the difference here is not huge but it's still a difference and as you know in trading every Small Change can make a huge difference in the end but alright guys so now you know
a few macd indicator settings but if you haven't already I highly recommend you guys to watch my video about the macd indicator where I talk in depth about how the indicator actually works
