MACD = Moving Average Convergence and Divergence Hybrid = Combining the two main MACD signals into one indicator BSH = Buy Sell Hold
This indicator looks for a crossover of the MACD moving averages (12ema and 26ema) in order to generate a buy/sell signal and a crossover of the MACD line (12ema minus 26ema) and MACD signal line (9ema of MACD line) in order to generate a completely seperate buy/sell signal. The two buy/sell signals are combined into a hybrid buy/sell/hold indicator which looks for one, neither, or both signals to be "buys." If both signals are buys (fast crossed above slow), a "buy" signal is given (green bar color). If only one signal is a buy, a "hold" signal is given (yellow bar color). If neither signal is a buy, a "sell" signal is given (red bar color). Note: MACD moving averages crossing over is the same thing as the MACD line crossing the zero level in the MACD indicator.
It makes sense to have the MACD indicator loaded as a reference when using this but it isn't required. The lines plotted on the chart are the 12ema and a signal line which is the MACD signal line shown relative to the 12ema rather than the MACD line. The 26ema is not plotted on the chart because the chart becomes cluttered, plus the moving averages crossing over is indicated with the MACD indicator.
This indicator should be used with other indicators such as ATR (1), RSI (14), Bollinger bands (20, 2), etc. in order to determine the best course of action when a signal is given. One way to use this as a strict system is to take a neutral cash position when a yellow "hold" signal is given, to go long when a green "buy" signal is given, and to go short when a red "sell" signal is given. It can be observed that for many tickers and timeframes that green-yellow-green and red-yellow-red sequences are stronger signals than green-yellow-red and red-yellow-green signals.
Note: Chart type must be "bars" in order for the bar colorization to work properly
What is a good time frame in order to only go long or short when there is a trend?
Skipper86
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@Damaurice, I'm not sure I understand the question. You always want to start with the 1 month candles and work your way down to whatever the lowest candle you think is appropriate for your trading time horizon. If you plan on holding for years, trade off the monthly chart (each candle represents one month). If you plan on holding for months, trade off the weekly. If you plan on holding for weeks, trade off the daily. If you plan on holding for days, trade off the 4 hour. If you plan on holding for just a few days, trade off the hourly. If you plan on holding intraday, trade off the 15min or the 5min. Other people may give different time interval suggestions and I'm not some experienced trader so take my suggestions as more philosophical than rules to live by. Every security is different so no matter what you do, always use the past performance of the indicator at a specific time interval to decide if its worth using at that interval or not and to determine entry criteria that is most likely to be profitable. At the end of the day, this indicator is just a visual aid for the MACD so gaining understanding of the MACD is gaining better understanding of this indicator. I recommend reading up on the MACD for additional trading strategy info pertaining to this indicator. Did I answer your question?
Damaurice
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@Skipper86, Thanks, yeah it was interesting.I found that in back testing with different time frames,the buy/sell signal works better or worse. But so that is not because of the MACD isnt able to perform so well on short time frames, it's more because of the specific scenario I back tested the indicator with?
Yesterday 11.12.2020 I tried it on the DAX.I found that short time frames the indicator is mostly right, but sequences for eg. buying or selling are short and so risky. On longer time frames like 30M, it responded late for a eg. a bullish sequence and late when it goes into bearish. I found the 15M time frame best for intraday trading yesterday.
But you're saying, it hasnt anything to do with the indicator itself, right? so on another scenario with another stocks, it may have been another time frame that would have been best?
Regards
Skipper86
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@Damaurice, The indicator reflects the buy/sell signals of the MACD and the MACD is a lagging indicator so the signals will never be perfectly timed and will always be late. It might make sense to look for divergences in RSI, bollinger band extremes, ATR (historical volatility) levels and ADX (directional movement) in conjunction with the MACD and this indicator in order to improve the success rate of your trades. I wouldn't try using all of them with it though, that would be too confusing, just use one or two, RSI and Bollinger are probably a safe bet. Also, if trading intraday, comparing the indicator to a previous day with the same level of volatility (ATR) might help you find a better time interval.