The Moving Average Convergence Divergence (MACD) is a popular technical indicator used in trading. It is a trend-following momentum indicator that is designed to show the relationship between two moving averages of prices. It is typically displayed as a histogram, which shows the difference between two exponential moving averages (EMAs), or as a line chart, which shows the difference between a fast and slow EMA.
The MACD is calculated by subtracting the 26-day EMA from the 12-day EMA. A 9-day EMA of the MACD is then plotted on top of the MACD line to act as a signal line. When the MACD line crosses above the signal line, it is considered a bullish signal, while a cross below the signal line is considered a bearish signal.
The MACD is a versatile indicator that can be used to identify potential changes in trend, as well as to confirm existing trends. It can also be used to identify potential divergences between price and momentum, which can signal a potential trend reversal.
Traders often use the MACD in combination with other technical indicators and chart patterns to identify potential trading opportunities. It’s important to note that like all technical indicators, the MACD should be used in conjunction with other forms of analysis and risk management techniques to maximize the chances of success.
The default settings for the MACD are 12, 26, and 9, which means that the indicator is calculated using a 12-period EMA, a 26-period EMA, and a 9-period EMA of the difference between the two EMAs.
The settings of 8, 17, and 9 use a shorter-term EMA (8 periods) and a longer-term EMA (17 periods) for the calculation of the MACD, along with a 9-period signal line. Shorter-term moving averages may be more responsive to changes in price, but they may also produce more false signals.
To determine which settings would be more profitable on the daily timeframe, you would need to backtest each set of parameters using historical price data and evaluate the performance of each strategy using metrics such as profitability, drawdown, and win rate.
However, it’s important to note that the profitability of any trading strategy can vary depending on market conditions and other factors, and past performance is not necessarily indicative of future results. It’s also important to use proper risk management techniques and to avoid over-optimizing a strategy to prevent curve-fitting and ensure that the strategy is robust and reliable over time.