To make the Moving Average Convergence Divergence (MACD) indicator faster and more responsive to price changes, use shorter periods for the Exponential Moving Averages (EMAs) used in its calculation.
Understanding the MACD
The MACD is calculated using three parameters:
- The Fast EMA: A shorter-period EMA.
- The Slow EMA: A longer-period EMA.
- The Signal EMA: An EMA of the MACD line itself.
The standard settings are typically 12, 26, and 9, representing the periods for the Fast EMA, Slow EMA, and Signal EMA, respectively.
Shortening the EMA Periods
The key to speeding up the MACD lies in reducing these periods. Here's how it works:
- Shorter EMAs react more quickly to recent price changes. By using shorter periods, the MACD will generate signals sooner.
Example: Fast MACD Settings for Day Trading
For day trading, where quicker signals are crucial, a common faster setting is 5, 13, and 6. This means:
- Fast EMA: 5 periods
- Slow EMA: 13 periods
- Signal EMA: 6 periods
Comparison Table
| Setting | Fast EMA | Slow EMA | Signal EMA | Responsiveness | Use Case |
|---|---|---|---|---|---|
| Standard | 12 | 26 | 9 | Slower | Swing Trading, Long-Term Investing |
| Faster (Example) | 5 | 13 | 6 | Faster | Day Trading, Scalping |
Considerations When Speeding Up MACD
While faster settings can provide quicker signals, keep in mind:
- Increased Sensitivity: Faster MACD settings are more sensitive to price fluctuations, leading to more signals.
- Potential for False Signals: This increased sensitivity can also result in more false signals, requiring traders to use additional confirmation methods.
- Whipsaws: Faster MACDs can be prone to whipsaws, where the indicator generates a buy signal quickly followed by a sell signal (or vice versa).
Conclusion
Using shorter EMA periods, such as 5, 13, and 6, will make the MACD indicator faster and more responsive. However, traders should be aware of the increased risk of false signals and whipsaws associated with these settings. It's crucial to backtest any chosen settings and incorporate them into a robust trading strategy with appropriate risk management.
