What’s the best way to avoid false signals when using MACD?
They’re not “false signals”.
They’re real signals that worked out badly for the purpose for which you chose to use the indicator.
I’m not just being pedantic for the sake of it. It’s really important and helpful to understand clearly the difference between the two things.
The bottom line, here, is that indicator “signals” (especially from indicators derived from moving averages) aren’t great trade-entry signals. I’m not suggesting that indicators have no value and can’t be helpful. They can, of course. But not often as trade-entry signals.
The important mistake to avoid, here, is imagining that because the indicator(s) you’ve chosen to use suggest trade entries that sometimes work well for you and sometimes badly, you can somehow “filter out” more losers than winners by using extra indicators in addition. This is a very misguided (but very widespread) approach, constantly reinforced by marketers of goods/services to struggling traders who find it much easier to make a living from marketing than from trading! And it’s an approach that “traps” enormous numbers of traders and prevents their ever becoming successful.
Be aware also that almost all the common indicators were originally invented for trading stocks (only) from daily charts (only). There’s no reason they “ought to” work for trading forex from faster charts.
Also, understand clearly that the standard MACD settings date from a 6-day week. 12 represented two weeks (in days) and 26 was the number of trading days in an average 30-day month (of 4.3 weeks). Again, there wouldn’t be much logic in expecting those still to apply now, would there?
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Although MACD is a complete indicator, as an indicator that only takes historical data, it is fairly to experience false signals, where future prices do not match MACD theory, this is where risk management is needed to mitigate risk. The market is very dynamic, indicators are only tools, there is no perfect indicator.
OscarR123
[Removed due to forum policy violation] Your question is a legitimate one and is one I asked myself when I first began to trade. 35 years ago there was no internet. Orders were phoned in to your broker who contacted their man on the floor and he would place your order where traders communicated bids and offers through shouting and hand signals in physical trading pits using what was then termed the open outcry method.
Today it is different. You asked a simple question, my reply to you is this. You need to understand what your indicator does and be able to watch it work. The Youtube university is the best place to begin to gather knowledge. There is a wealth of advice on how to use most indicators available, on youtube.
To complement the knowledge you gain from Youtube, use Tradingview. Tradingview is the charting program I use and is free to open an account. You have to open an account but you don’t need to pay unless you want to upgrade. I used it for more than a year before I upgraded (I have a premium membership). The free account lets you apply three indicators to your charts so it is very functional.
The reason that this will help you is because you can select most financial instruments being traded and you can paper trade with live data and no fees if in the US. What would be of immense benefit to you is the replay feature where you can select your indicators (tradingview has many), apply it to them to the chart, go back into past data select a bar to play from, press play and watch the market as it moves and the way your indicator behaves and you can see how your signals perform and adjust them accordingly. To actually be able to see the candle charts moving at 10x speed gives you an insight of how the indicators relate to your way of thinking.
Best Wishes
Hi @OscarR123,
We can’t avoid the false signal completely, you can reduce it by several methods.
- Using Price Action is the best.
- Combine your strategy with Higher TF analysis.
- Depends on how you use MACD, when you use MACD as entry signal, you can use other indicator as complement to detect market phase, trending or sideways.
Many others, but these three are the simplest one.
I never knew this.(I wonder how many people trading forex from maybe 1-hour charts with an MACD set of 12-26-9 knew this?) Thank you! 
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Hi @TheodoreThring,
Without any intention, I want to share how to use an indicator properly. It’s a lesson I got from a very senior professional trader in 2007.
I was told, human is a very persistent thing, especially it’s related to wealth. Probably since the ancient time, we are always been the slave to it. Because of it, the pattern of life is never changes. This principle applies to market price as well.
When we scrutinize thing, we hardly can find pattern. When we step back, loosen a bit, look into the big picture, the patterns is there. This is the reason AI can jump in our life. The word of tendency is the key.
About indicator, your definition is correct. MACD default setting is used in stock and commodity trader on daily price. Since most trader has no tools to analyze market, most of them trade by impulse. We had no sufficient tools to monitor price by hour and minute. So the limit is on daily price.
Nowadays, with technology, we can analyze market with different way, this will definitely change the market, but the patterns is still intact. Reason is simple, the old participants are still there. The only way to change the pattern completely is by removing the old trader from market.
Having all of the stories above, let’s check MACD default setting. As I always mentioned, to use indicator we have to analyze first how the indicator work with the instrument. Will the indicator “smart” enough to follow the price movement.
Let say we look for MACD Signal Crossing, just put the indicator on the chart and observe the history. we can see ourselves how many noises on daily chart. No need to change the setting, move to others timeframe.
To cut it short, I just pick H1, as you can see the signal is getting better.
The point is the way how market is traded has changed. In the past we rely on daily price, now it’s the matter of how deep market will consider the price. For example on daily chart using 26 candles isn’t enough. But on H1 chart, 26 candles is sufficient to analyze market (reason is the old traders are still playing this way).
Hopefully, it will give you more perspective.
Wish you have a great position today
It could be one of the many things professionals tend to know and retail traders not?
It seems that institutional traders are unsurprisingly not using those original daily chart/6-day-week settings.
There’s a great deal of false information about MACD online. I was lucky to learn that much of it’s corrected right here at Babypips. These comments helped …
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None or almost none, as you imply - but where you’re dealing with CFD’s, the majority are people who “learned” to trade from commercial websites and especially from Youtube.
Almost always without ever being prompted to ask themselves the key question of whether or why on earth people with the ability to trade for a living would be spending so much time posting videos on Youtube?!. 
I guess they’re “much needed”, though: they’re directly or indirectly the source of all the profitable CFD traders’ incomes, aren’t they? 
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Lol, good point. 
I think those “French MACD” settings are popular now, anyway?
I found Linda Bradford-Rashke’s (?spelling) settings of 3-10-16 interesting, and I’ve seen in other threads here that some people are using them successfully, but I think they were originally constructed for a specific system used by one of the hedge funds she traded for?
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Yes, it was the “First Cross” system. There are some accounts of it readily available on the web, if you google “Linda Rischke First Cross MACD System” you can find it,
There are also 5-15-15 settings in use professionally (as a directional bias, I understand, not for entering trades): I met a proprietary fund trader who had those on a screen at work.
This is the important point for people to grasp. Everything else is just “trimmings” that probably don’t help a lot without understanding what “signals” are and how they work/don’t work. 
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