Whilst I'm sure everone has their own way of using and trading signals, I'm equally sure that quite a number of traders haven't a clue and will just chance a trade and hope it goes their way. Having now managed to successfully distance myself from that "Everything I know, I learnt from watching Star Trek" *style* of trading, FWIW, I would like to give you my thoughts on trading MACD.

The basic MACD trading rule is to sell when the MACD falls below its signal line. Similarly, a buy signal occurs when the MACD rises above its signal line. It is also popular to buy/sell when the MACD goes above/below zero.

I have been using MACD to trade the Dow and S&P 500 and have documented same both here and over on the ADVFN USA threads. I have sucessfully traded signals on overbought/oversold conditions when the shorter moving average pulls away dramatically from the longer moving average (MACD rises) so then it is likely that the price is overextending and will soon return to more realistic levels.

The divergences (which Snip has pointed out to me on occasion) indicate that an end to the current trend may be near. Bearish divergence occur when the MACD is making new lows while the price fails to reach new lows. Bullish divergences occur when the MACD is making new highs while the price fails to reach new highs. Both of these divergences are most significant when they occur at relatively overbought/oversold levels. That is not to say that MACD can not be traded on unless these conditions are met. It does mean, IMO, that the trade is riskier.

Here are the two most useful MACD trade setting I use:

MACD 5, 8,5 - using a live 60 minute chart (reduces noise), trading overbought/oversold conditions on the DJIA
MACD 5,35,4 - Crossovers on S&P 500 using a live 5, 10, 15 or 30 minute chart (preferably using a combination). My own preference is to trade using a 10 minute chart.

Along with these MACD settings, I use the Price Rate of Change to try and predict the direction.

I am happy to share these settings as I don't consider anyone here a counterparty to my trades as the liquidity on these indices is beyond our collective force. To that end, I would appreaciate thoughts and constructive arguments relating to trading signals.

Chart from Bosco

I think this sort of thing might work well on the VIX, trading the SPX in the opposite direction.

Here's why:



1) The VIX is mean-reverting. It doesn't stay at extremes away from moving averages for long.
2) The VIX is highly autocorrelated. If it is down for one bar, it's highly likely to continue in that direction. This means reversals are easy to pinpoint.
3) It tends to lead the market.

Try 585 macd on the VIX with buys on the SPX if the macd crosses above 0.10, and sells if the macd crosses below 0.10.

Exit positions as soon as the macd crosses again, regardless of where it is.