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Whale Trading

MACD Trend Following Strategy: Focusing on Trend & Momentum Structure rather than Signal Crossover

In this article, we cover a MACD-based Trend Following Strategy.

We assume you have already seen:

  • MACD Line (Fast EMA – Slow EMA),
  • Signal Line,
  • Histogram,
  • Meaning of Zero Line (0 axis)

in MACD.

Here, we will go a step further and design a strategy structure with the perspective of:

Not "Buy/Sell because Golden/Dead Cross appeared,"
but "What information does this MACD structure summarize
about the current trend direction and momentum strength?"

The diagram below compares:

  • Left: Clear Uptrend where MACD line stays above the zero line and histogram corrects only in the positive (+) area.
  • Right: Ranging (Box) Market where MACD repeatedly crosses up and down the zero line and histogram also shows frequent reversals.

Understanding this difference helps to distinguish:

  • "Whether to view it as Trend Following Mode now,
  • Or to view it as Pullback/Range Trading Mode like Mean Reversion Strategies."

1. How to Use MACD in This Strategy?

Traditional MACD explanations focus a lot on crossover signals like:

  • Buy when it goes above the signal,
  • Sell when it goes below the signal.

But in practice:

  1. MACD's Zero Line (0)
  2. Relative Position of MACD Line and Signal,
  3. Histogram's Size Change (Expansion/Contraction)

give more important information.

In this strategy, we limit the use of MACD to:

  1. Trend Filter

    • Position above/below Zero Line,
    • Slope of MACD line and position relative to signal.

  2. Momentum Strength Measurement

    • Expansion/Contraction of Histogram,
    • Change in height of Highs/Lows.

  3. Pullback Entry Timing Aid

    • Section where histogram contracts near 0 on 4H basis
      and then expands again in the trend direction.

In summary,
we use it as a tool to read "Direction + Change in Strength",
and MACD standalone counter-trend trading is not covered in this strategy scope.

2. Settings and Timeframe: 12–26–9, Daily + 4H Combination

The most widely used MACD default settings are:

  • Fast EMA: 12
  • Slow EMA: 26
  • Signal Line: 9

In this strategy, we will base it on the combination of:

  • Daily MACD → Define Big Direction and Momentum Environment
  • 4H MACD → Pullback Entry Timing Aid

You can use other timeframes (4H/1H, 1H/15M, etc.),
but it is important to always maintain the role division of:

  • Higher Timeframe: Direction/Environment Filter
  • Lower Timeframe: Detailed Entry/Risk Management

3. Organizing "Trend Environment" First with Daily MACD

First, distinguish the environment with Daily MACD.

3-1. Uptrend Dominant Environment (Long Bias)

Example criteria:

  • MACD line and signal move mostly above the zero line
  • Even during downward correction,
    MACD does not go deep below the zero line
  • Pattern where histogram's negative (-) area correction
    ends relatively short and shallow

In this environment:

  • When viewed with other trend filters like 60-Day Moving Average Strategy,
  • It is classified as a section favorable for Long Direction Trend Following Strategy.

3-2. Downtrend Dominant Environment (Short Bias)

Conversely:

  • If MACD and signal move mainly below the zero line
  • And even in rebound sections,
    MACD cannot stay above 0 for long
  • And structure where histogram's positive (+) area ends shortly

Then,
it is viewed as an environment favorable for Short Direction Trend Following Strategy.

3-3. Box/Choppy Environment (Wait or Other Strategy)

Cases like below:

  • MACD frequently crosses up and down the zero line
  • Histogram shows positive/negative areas
    alternating in short cycles
  • Price also moves between box top/bottom
    based on Support/Resistance Basics

→ In this strategy, it is a non-preferred section from a trend following perspective.
At this time, it is natural to consider Mean Reversion Strategies.

4. Catching Pullback Entry Timing with 4H MACD

Let's look at an Uptrend (Long) example.

  1. Daily MACD Environment

    • MACD and signal maintained above zero line,
    • Structure where histogram negative (-) correction ends shortly,
    • Rising section where price is above MA-60 based on 60-Day Moving Average Strategy.

  2. Price enters Correction Swing on 4H basis

  3. Points to watch on 4H MACD

    • Histogram contracts from positive (+) to near 0
    • Initial section where it tries to re-expand in positive (+) direction
      rather than complete downward reversal
    • Appearance of MACD line attempting Re-acceleration
      above the zero line

  4. Conditions on Price side

It is a structure to consider entering in the trend direction (Long)
where Price + MACD + Volatility overlap like this.

In Downtrend (Short):

  • Apply oppositely, such as seeing the beginning where
    histogram contracts from negative (-) to near 0 and then expands again in negative (-) direction,
  • Section where MACD attempts re-decline acceleration
    below the zero line as Short entry candidate zones.

5. MACD Divergence and Common Traps

When using MACD, you often focus on Divergence.

  • Bearish Divergence where price makes higher highs but MACD highs get lower
  • Bullish Divergence where price makes lower lows but MACD lows get higher

are representative.

5-1. Divergence is Closer to a "Brake Signal"

The important points are:

  • Divergence does not guarantee immediate reversal,
  • Rather, it is safer to view it closer to
    "Timing to reduce chasing or secure some profits
    on the trend following side    ".

For example:

  • While daily uptrend continues,
  • If MACD histogram's rising highs are gradually decreasing,
  • And MACD line is gently regressing towards the zero line,

Rather than aggressively increasing new longs:

  • Focusing more on partial profit taking of existing positions,
  • Managing maximum weight per item set in Risk Management

is advantageous in practice.

5-2. Abusing MACD Signals in Ranging Markets

In box sections:

  • MACD frequently moves up and down the zero line,
  • Histogram often pops out shortly
    alternating positive/negative areas.

At this time:

  • If you interpret every small crossover
    as "Start of a new trend",
    losses are easy to accumulate quickly.
  • This strategy assumes reducing trend following
    in sections where MACD does not show a trend environment in the first place.

6. Pros and Cons of MACD Trend Following Strategy

6-1. Pros

  • You can see Trend Direction (Above/Below Zero Line) and
    Momentum Strength (Histogram)
    together at a glance.
  • Compared to seeing only simple price moving averages like 60-Day Moving Average Strategy,
    you can capture "Change in Strength" more sensitively.
  • When viewed with RSI/Stoch of Oscillators,
    it helps to cross-verify trend direction and overheated/oversold sections.

6-2. Cons/Cautions

  • It becomes a whipsaw signal frequently in box/choppy markets.
  • If you obsess over excessively detailed crossover signals,
    it is easy to become a "Short-term system reacting to every movement".
  • From the perspective of Risk Management,
    if R/R, maximum drawdown, and position size rules are not clear,
    it is difficult to protect the account in the long term
    even at spots where MACD looks good.

7. Checklist When Applying This Strategy

Whenever you feel MACD signals look good,
we recommend checking at least the questions below.

  1. "Based on Daily MACD,
    is it currently Uptrend/Downtrend Dominant,
    or Box/Choppy Section?"

  2. "Does the histogram contraction/re-expansion shown by 4H MACD
    match the higher trend direction?"

  3. "Is this entry also interlocking with
    Support/Resistance Basics,
    Patterns,
    and ATR?"

  4. "Are the Stop Loss/Target/Size of this position
    within Risk Management rules?"

  5. "Is the total account risk not excessive
    combined with other trend following positions already held?"

It is most practical to view MACD as:

"A Trend Indicator that summarizes Direction and Change in Strength simultaneously"

  • If you organize Trend Environment and Momentum Frame first
    with Higher Timeframe MACD,
  • And design Pullback Entry and Risk Management
    combining Lower Timeframe MACD + Price Structure + Volatility,

You will be able to use it as a trend following axis that can be sufficiently combined with
60-Day Moving Average Strategy,
Golden/Dead Cross Strategy,
and Ichimoku Cloud Strategy.