Mastering the MACD Indicator in 2025: Advanced Strategies for Smarter Trading

Irion Dekov
Jun 20
4 min read

The “Moving Average Convergence Divergence indicator” (MACD) is a momentum oscillator. It comes as a result of a subtraction between two Exponential Moving Averages of a security’s price. An EMA is a mean that includes an arbitrary number of prices, giving more importance to the last ones. Based on this, professional and beginner traders still use this indicator, given its multifunctionality and versatility. It helps to understand if the uptrends or downtrends are weakening or strengthening. Indeed, let’s see in detail how this indicator works.

How does the MACD indicator work?

This indicator is generally obtained by the difference between the 26-period EMA and the 12-period EMA. The result of this operation creates the MACD line. In addition, there is also a signal line that represents a 9-period EMA of the MACD.

Once the chart has been described, it’s time to understand how it can be interpreted. Traders who observe and utilize this indicator are looking for crossovers. A crossover corresponds to an intersection between the lines previously cited. Traders might enter a long position when the MACD line crosses above the signal line or sell the security (go short) if the MACD line crosses the signal line towards the bottom.

Moreover, on the chart is displayed a histogram. These columns represent the difference between the MACD and the signal line. A column that rises above zero (named MACD’s baseline) means that the distance is positive, while a downward column means the signal line is higher than the MACD. This histogram is used by traders to investigate whether a bearish or bullish momentum is high.

In this chart, the upward crossover of the MACD line against the signal line corresponds to the beginning of an uptrend.

Regarding divergences between the MACD line and price action, they can suggest/highlight possible reversals and weak trends. So, if the price reaches a higher high but the MACD histogram produces a lower high, it will likely be a signal of reduced bullish momentum. Therefore, if the MACD histogram brings out a higher low while the price closes at a lower low, it might represent an undermining of a bearish momentum.

Overall, it is obvious that the usage of just one indicator cannot give the traders a solid and faithful strategy. Thus, in the next section will be observed several indicators with which the MACD can be applied.

Advanced MACD Strategies for 2025

The first indicator that is often applied with the MACD is the Relative Strength Index (RSI). The combination of these two information allows for building a more efficient strategy. First and foremost, the RSI is an indicator (default period is 14) that shows whether the market, shares, or indexes are oversold or overbought. Its value ranges from 0 to 100. If it is below 30, the market is oversold (bullish signal), while above 70 means that it is overbought (bearish signal).

Therefore, the strategy that has been created follows these rules:

· Buying conditions: if the MACD line crosses the slow line (golden cross) and the RSI is oversold, buy.

· Selling conditions: if the MACD line crosses below the slow line (death cross) and the RSI is overbought, sell.

This strategy allows traders to perform operations capturing market reversals by using the RSI and MACD to confirm momentum direction. This combination offers major stability because the RSI verifies the MACD and vice versa, improving the reliability of the signal.

This chart is a clear example of the application of this advanced strategy. The RSI reached the 30 level and started an uptrend. In the meantime, a few periods later, the MACD line crossed the signal line, confirming the upward trend.

Another tool that can be applied with MACD is the Bollinger Bands. It’s a volatility channel indicator that helps determine whether prices are high or low on a defined basis. The indicator consists of three lines. A middle line, which is a 20-period (default setting) moving average, and a lower band and an upper band, each of which is 2 standard deviations away from the middle line.

This strategy is based on the usage of MACD to identify the momentum of a trend and the Bollinger Bands to determine price breakouts, for entering the market when the price is breaking out of the bands. The rules are:

· Buying conditions: if the price breaks above the upper band and the MACD line crosses above the signal line and is ascending.

· Selling conditions: if the price breaks below the lower band and the MACD line crosses below the signal line, and is going down.

In this chart, there is an application of the strategy “MACD and Bollinger Bands”. The MACD line crosses the signal line, giving birth to an uptrend. Indeed, the price closings broke the upper band, confirming the positive momentum.

What are the risks?

However, there are some risks regarding the usage of this specific indicator. First and foremost, the MACD is a lagging indicator, which means its signals might be delayed because it is based on historical price data. Moreover, it can produce false signals, especially in volatile or choppy markets. This could lead traders to make too many subjective interpretations.

To mitigate these risks, it is recommended to utilize additional indicators, like RSI or Bollinger Bands. In addition, to avoid misleading signals, traders should observe the MACD on different timeframes to distinguish real potential signals.

Conclusions

The MACD keeps being a powerful and versatile tool for traders focused on reducing uncertainty in their decision-making process. While effective on its own, its full potential is often achieved when used in combination with other technical indicators. Strategies such as "MACD and Bollinger Bands" proved how additional signals can help confirm trends and increase the accuracy of entry and exit operations. In short, the MACD is a cornerstone of advanced technical analysis and a fundamental element in any trader’s toolkit.