Eric Muathe
Learn how to improve MACD settings using Fibonacci sequences or the 3-6-9 approach by Tesla for trading stocks, cryptos, forex, and commodities.
Maximizing the MACD: Improving on Default Settings with Fibonacci and Tesla Approaches
Introduction
The MACD, or Moving Average Convergence Divergence, is a popular technical indicator used to analyze stock, forex, crypto, and commodity markets. As with any technical indicator, the MACD has its limitations, and its default settings may not always provide traders with the most useful information. In this article, we will explore two alternative MACD settings based on principles derived from the Fibonacci sequence and Tesla’s philosophy that the numbers 3, 6, and 9 hold the key to the universe. We will demonstrate how tweaking the MACD settings using these two approaches can provide traders with more effective signals for day trading and medium-term investing.
Fibonacci MACD Settings
The Fibonacci sequence is a mathematical sequence of numbers, where every number is the sum of the two preceding numbers. This sequence has a special ratio, known as the golden mean ratio, which is approximately 1.618. By using this ratio, we can identify key levels of support and resistance in financial markets. The Fibonacci sequence can also be used to improve the MACD settings.
To adjust the MACD using the Fibonacci sequence, we need to identify numbers in the sequence that are close to the MACD’s default settings of 12, 26, and 9. We can start by using the numbers 13, 21, and 8. This gives us a MACD setting that is similar to the default but with a slightly longer intermediate-term momentum. If we want a slower MACD setting, we can use the numbers 8, 13, and 5. This will give us more reliable signals for medium-term investing.
Tesla MACD Settings
Tesla’s famous quote, “if you only knew the magnificence of 3 6 and 9 then you would have a key to the universe,” suggests that these numbers hold a special significance. We can apply this principle to the MACD by using numbers that are divisible by 3 to adjust the MACD.
Using this approach, we can start with the default MACD settings and adjust them to 12, 27, and 9, giving us a slightly slower MACD setting. To obtain a medium-term setting, we can use 12, 9, and 6, and for a quicker setting, we can use 9, 6, and 3.
Comparing the Settings
To determine which settings are more effective, we can compare their performance in different market conditions. The default MACD settings and the Fibonacci and Tesla MACD settings can be easily visualized on a chart and compared side-by-side.
In one example, the comparison of default MACD settings and Fibonacci settings show both settings having very close crossovers. This means either setting can be used as a reliable signal for traders. However, the medium-term MACD settings of the Fibonacci method were found to provide more useful information during a period of price decline, displaying back-to-back positive divergence while the default MACD settings only gave one positive divergence. Similarly, for long-term investors, the long-term momentum of the Tesla method’s 12-27-9 setting may provide better insight into future market trends.
Using Trend Lines
The MACD indicator can be used with other technical analysis tools, such as trend lines, to further improve the accuracy of signals. For example, a trend line can be drawn on the RSI indicator alongside the MACD to identify desirable periods for trading. In one example, a trend line drawn on the RSI showed a double top rejection at 50, which coincides with a desirable entry point on the MACD.
Conclusion
In conclusion, the MACD is a versatile technical indicator that can be tweaked to provide more useful information for traders and investors. By using the Fibonacci sequence and Tesla’s principles, traders can optimize the MACD settings to suit their specific needs and market conditions. The MACD can also be used alongside other technical analysis tools to further enhance its accuracy. Ultimately, successful trading and investment strategies rely on a combination of technical analysis, fundamental analysis, and risk management.
