The Moving Average Convergence Divergence (MACD) indicator is one of the most popular momentum indicators used by technical traders and investors. While MACD is traditionally used on longer timeframes like daily and weekly charts to identify trend changes, it can also be very effective when used for scalping on smaller timeframes like 1-minute or 5-minute charts.
Scalping involves making many small profits from small price moves throughout the day. It requires entering and exiting trades very rapidly, often holding positions for just a few minutes or even seconds.The MACD is well-suited for scalping strategies because it can help identify very short-term momentum shifts and potential reversal points that scalpers can look to take advantage of.
However, when using MACD settings for scalping, it’s important to optimize them to match the fast-paced, short-term nature of scalping. The default MACD settings that may work well on daily charts are generally too slow for scalping. This article will explore different MACD settings for scalping traders can experiment with and provide guidelines on how to fine-tune the indicator for effective scalping.
Optimizing The MACD for Speed
The default MACD settings used in most charting platforms consist of a 12-period short-term moving average, a 26-period long-term moving average, and a 9-period signal line. While these work reasonably well on daily charts, they produce signals that are too slow and lagging for scalping purposes.
To make the MACD more responsive on very short timeframes, the moving average lengths need to be shortened significantly. A good starting point for 1-minute and 5-minute charts is:
· 12-period short-term moving average
· 18-period long-term moving average
· 9-period signal line
Shortening the moving averages from the defaults of 12 and 26 periods down to 12 and 18 periods makes the MACD crossover signals occur much faster. This allows scalpers to enter and exit positions in sync with very short-term momentum shifts.
The signal line period can usually be left at 9 periods when optimizing for scalping.This keeps a slight lag between the MACD line and the signal line to filter out some of the noise on such small timeframes.
Experimenting with Moving Average Lengths
While the 12/18/9 settings provide a good baseline, it’s still worthwhile experimenting further by adjusting the moving average lengths up or down by a period or two. Shortening them slightly may produce even timelier signals at the cost of more whipsaws. Lengthening them could smooth out some of the whipsaw signals.
Some other moving average combinations scalpers can test include:
· 10/15/9
· 12/16/8
· 14/20/10
The goal is to find a setup that identifies momentum shifts quickly enough for scalping purposes but still filters out some of the random noise and choppiness on very short timeframes. These optimized settings will vary depending on the specific market and timeframe being traded. Scalpers should test various combinations and see which performs best for their strategy.
Additional Tweaks for Scalping
Beyond just adjusting the moving average lengths, scalpers can also apply a couple of other tweaks to fine-tune the MACD for their specific style of scalping:
· Color Coding – For 1-minute charts especially, simply switching the MACD and signal lines to different bright colors makes the crossovers much easier to spot at a glance amidst short-term volatility.
· Histogram Settings – While not essential, removing or shortening the MACD histogram timeframe, such as setting it to 5 periods instead of 9, removes a layer of lag and makes crossovers slightly sharper.
· Baseline Level – Setting a horizontal baseline level, usually 0, makes it simpler to identify clear crossovers above and below. Baseline levels also help scalpers establish quick profit targets.
· Smoothing – Applying a 1 or 2-period simple moving average to the MACD line itself can help smooth out some of the noise without greatly decreasing responsiveness on very short timeframes.
Using these additional customizations along with optimized moving average settings allows scalpers to fine-tune the MACD and MACD signals specifically for their preferred scalping approach and preferred markets. The goal is to make the indicator as clean and responsive as possible within the context of 1-5 minute charts.
Confirmation for Reducing Risk
Even with optimized MACD settings, scalping on very short timeframes introduces a lot of volatility and random noise that signals alone can’t filter out. It’s generally a good risk management strategy for scalpers to pair the MACD with some form of price confirmation before entering trades. A few confirmation methods scalpers may consider:
· Candlestick Patterns – Waiting for MACD signals to coincide with bullish/bearish candlestick reversal patterns like pin bars provides an extra indication that a momentum shift is occurring.
· Moving Average Crossovers – Using a faster 5-period or 8-period simple moving average to confirm the direction of a MACD crossover helps prevent whipsawing.
· Volume Surges – Big spikes in volume accompanying MACD signals, especially around support/resistance levels, lend credibility that a tradable pivot may be developing.
· Retracement Levels – Only entering trades when the MACD signal occurs close to a 38.2%, 50%, or 61.8% Fibonacci retracement level of the last move reduces impulsive, non-trend based entries.
Requiring any one of these types of price action confirmations in addition to the MACD signal can substantially reduce whipsaws and false signals, thereby lowering risk for the scalper. It may cut down slightly on trading opportunities as well but improves overall risk-adjusted performance.
Using Principles of Range Trading
A final tip for scalpers using MACD is to apply some basic principles of range trading. Since scalping involves taking very small, short-term profits, focusing MACD signals within established daily or hourly price ranges can provide trade planning and increased odds.
For instance, a scalper may only look to enter long at MACD buy signals after a dip into the lower range boundary for the period, with a profit target of the upper range. Entering shorts would follow a mirrored strategy of selling rallies into the top of the range.
This range-based approach provides multiple benefits. It reduces chasing moves, gives defined risk points, and improves consistency by focusing entries in high-probability areas where supply/demand is strongest.
Conclusion | MACD Settings For Scalping
When optimized properly for very short timeframes, the MACD indicator can be a highly effective tool in a scalper’s arsenal. Fine-tuning the moving average lengths and applying supporting confirmations off price action or moving averages improves the signals specifically for scalping smaller timeframes. Adding concepts like range trading principles provides scalpers with a well-defined trading plan to profit from intraday volatility. With practice analyzing markets through an optimized MACD, scalpers can develop an intuitive feel for momentum shifts and low-risk entries.
