The Simple MACD Strategy to Spot Big Winners Early (5,712% Example) transcript

In today's episode, I'm going to teach you how to use one of my favorite technical indicators. It's called MACD, which is an acronym that stands for moving average convergence divergence. This is an indicator that compares the relationship of two moving averages, a fast moving average and a slower moving average. So, when the price begins moving up very quickly, these moving averages will diverge. They'll move apart.

And when the price begins to go sideways or even pull back, these moving averages will come closer together. Now, the really cool thing about using MACD is that this is an indicator that can number one help you avoid false breakouts, which is very important, and number two, help you focus on trading during the time when the momentum is the strongest and therefore the resolution or the breakouts will be the biggest. The other thing that's really cool about the MACD is that you can use it on any financial instrument whether it's stocks, cryptocurrency, forex, futures, large caps, small caps, it doesn't matter because this is part of the universal language of technical analysis.

Now, let's go ahead and jump onto the whiteboard and start breaking down what the MACD really is. So, this is a candlestick chart as you can see right here. And I'm just going to plot out two different moving averages just for example. We're going to do a faster moving average, which is going to stay closer to the price action. And then we'll plot out a slower moving average down a little bit lower. So, what you can see here is as the price moves up, these moving averages are diverging.

They're moving apart, but as the price comes back down, they move back together. They don't cross over, but they move back together. And the price begins to move up again. They begin to again diverge. And so when we actually look at the MACD on a chart, when it's plotted on the chart, it is an oscillating indicator that moves apart and then comes back together. And when it does that, we get crossover signals. Those signals are part of the strategy that I'm going to teach you today.

So I'm going to begin this class with a little pop quiz just to help level set where we're all at. So, I'm going to ask you when you look at this chart if this to you looks like a safe entry. So, right now we obviously, as you can see, have the price that's moved up quite quickly. We've got rapid rate of change. Now, the MACD is not yet displayed on this chart. I've covered it up down here. So, you can see our moving averages.

They're right down here. The price has moved up quickly and right now we're on a little bit of a pullback. Now, you might astutely say that this is not a good place to be a buyer because it's pulled back visually just a little bit too much. And you would be correct on that. And if we looked at the MACD right down here on this panel, these lines right here show us when the MACD is positive. And when it goes negative, you cross over right there.

The histogram also goes red to visually help you understand that we're now in a period that's going to be more uh have more consolidation, more congestion, and more likely to have upside resistance. Now, when the MACD crosses right here and goes back to positive and goes back to green, we basically open up for the next leg higher, which gives us this nice squeeze here, this little pullback, and then this nice squeeze.

But right in this area right here where we're thinking about buying the MACD has crossed back into the negative. The volume as you can see is red here during this pullback. But because that MACD is negative that is telling us that the trend has shifted. It is a very visual indicator and for me it's pretty much red light green light. When the MACD is negative I will not take this trade. And so if I had taken the trade, although it gave a short-lived burst of momentum here, overall it continued to sell off, go lower, and it would not have been a good trade.

All right, let's look at another example. This is another pop quiz. So here we have the price that's popped up, gone sideways, popped up, gone sideways, popped up a little bit more, and now pulled back. We have great buying volume. It's clearly very strong and if this was perhaps one of our leading gainers in the market, I think we'd be very tempted to take a position down in this area. Now, let's look at the MACD. When we open up the MACD, we can see the same thing as the previous that the MACD had crossed over right there.

So, simply using the MACD as our final checklist, is it positive or negative? It's negative, which means we do not take the trade. What ends up happening on this trade again? It pops up just for a moment before going quite a bit lower. In other words, this could be perceived as what's called a bull trap where buyers jump into it thinking it's going to go higher and then get faked out and end up losing money. And I want to help you avoid those types of false breakouts.

So now in this example right here, you can see again nice steady momentum moving higher, a nice big green candle here, a little pullback, a little bottoming tail on this candlestick. And if we pull up the MACD, it's going to show us that the MACD is currently wide open. So in this case right here, I would be a buyer right down here looking for that first candle to make a new high and a retest to the high of the day. So would this have worked?

And the answer is yes, it would have worked. We had a nice volume profile. There was more accumulation, more buying than there was selling. The MACD was positive. And this entry would have worked very nicely. Here's another example. So right here once again you can see with the MACD open you can see that this would have been a good setup. Now if that MACD had been negative I wouldn't have taken the trade but the MACD is positive.

Although this dipped down here and did uh cross into the negative it crossed over again went positive. And so this little area right here represents a potential pullback for an entry for the next leg up. So what I'm looking for whenever I see something that's moving quickly. I don't really want to buy just in the middle of the move. I want to wait for a pullback. But sometimes the pullback, as was the case here, comes back a bit too much.

The MACD goes negative and it's not a good place to be a buyer. Or in this area up here where the MACD also went negative, right? We cross over, we go negative. And although it's going sideways, now it's pulled back for a little bit too long. So in order to improve my accuracy, I want to focus on trading during the times when I have the highest likelihood that the price will continue going higher. So in this example here, you can see the MACD was positive at the beginning of the move right through here.

We got our first pullback and the MACD was still positive, which would have made that a good potential entry. It then dipped down and right around here, the MACD went negative. So any of the traders buying in this area or in this area were ultimately trading against the trend. It's like swimming against the current. You would have been fighting an uphill battle because the momentum was against you. Now right here something interesting happens.

The MACD begins to shift very quickly. We get this crossover. And so in this moment the price has been going sideways for long enough that the moving averages have gotten very close together. And when the price pushes higher right here, the MACD actually crosses back in favor of the trade and you get an immediate swing back to the upside. A really powerful one. If you were using the MACD, you would have felt more confident taking that trade knowing that the MACD was so close to going positive.

And you would have felt more confident buying this dip here for this rally back up. Even though this rally didn't continue a lot higher, it still would have been more than enough range to pull out a nice profit. And in this case for me about 53 $56,000 total and $53,000 just on that stock right there. Now as I speak today we have a stock that's up over 4,500% and it's still going higher. And so that is going to be a great case study that I'm going to use to demonstrate how the MACD would have helped you time your entries and avoid what ultimately were some pretty dramatic false breakouts.

So, this is the simple MACD strategy. I only trade when the MACD is positive or crossing from negative to positive. I'm going to share my MACD settings with you during today's class. Number two, this is only a strategy that works for day trading on stocks, and it doesn't have to be stocks. It could be a currency or a forex pair, something like that. Uh, but it has to be on an instrument that has at least five times relative volume.

What does that mean? It means that the volume needs to be five times higher than its average volume over the course of the last 50 days. What is important here is that high average volume above average volume today means that something significant is happening and most likely there's going to be a lot of eyes on this stock which means when you get those MACD crossovers there's a lot of traders watching those signals. shorts are going to cover, long traders are going to buy, and you're going to see better uh resolution, bigger uh breakouts essentially at these apex points.

Number three, micro pullbacks, bull flags, and ABCD patterns are going to be the strongest candlestick patterns for the initial entry. And then number four, I do not want to trade the backside when the MACD is negative. This is really important to avoid. Okay, so this is a simple MACD strategy and you're going to learn the ins and outs of it here today. The settings that I use for my MACD, for the fast length, I use a setting period of 12.

For the slow length, I use a setting period of 26. The source for both is the close, the close, and the signal length is nine. Those are the MACD settings that are standard. Those are the MACD settings that I use. To me, it's really important to use the standard settings because if you try to create custom settings, what can end up happening is you get false signals that other people won't see. And so, in a way, I sort of think of technical indicators as being somewhat akin to traffic lights.

And traffic lights work because they're well respected. So, if you just start changing the color of traffic lights or changing the settings of how they work, all of a sudden you're going to get unpredictable responses. People are going to be blowing through. they're not going to know what to do and it's not going to be it's not going to be successful. So, it's very important with technical indicators that you use the same indicators everyone else uses.

So, when there are obvious signals, you're seeing them as well because sometimes there's a very obvious signal that's saying don't buy, sell. You know, this stay out. And if you don't see that and you end up buying, you're just going to lose money. It's an unnecessary loss. So, these are the standard settings that I'm going to use uh for this strategy. Now, this is an example of a chart where the MACD would not work at all.

So, remember when I said it's very important that the instrument that you're trading has high relative volume. This is an example of Ford Motor Company. And on this particular day, it does not have high relative volume. There's nothing happening. The price is going sideways. And although you could look at the MACD right down here, this panel, and see that you're getting crossovers, these crossovers are meaningless. So, MACD signals are meaningless.

When a stock is consolidating sideways, and when it has no momentum, this has no momentum. It has very low relative volume. There's nobody watching this stock. So, it's not going to work. Now, on the other hand, this is where things get interesting. This is a stock that went from about $2 a share all the way up to over $11 a share, as you could see, rallying higher and higher and higher and higher. So the MACD crossovers here are very significant.

Now at the very beginning of the move here there was a catalyst and that catalyst that event that sparked this move was that the company put out breaking news. So when that breaking news came out the stock immediately began surging up and move immediately those moving averages diverged. They moved apart, right? So they're moving apart right here. And so from the very beginning of the move, the MACD is wide open which is fine.

So this pullback right here would have been a great place to be a buyer. It goes a little bit higher. This pullback here would have also been acceptable. And then right here we get a crossover. The MACD goes negative. And so for any traders that bought there or bought in here, you're trading against the trend. The tide is going out so to speak on this. And then suddenly the tide flips. We break out right here. The MACD goes back to positive.

And then this first pullback right here is a great place to be a buyer. So, this is the type of instrument that we want to be focusing on. And in my case, I'm trading stocks. Now, I'll show you a bunch of examples from uh from today's price action, which was uh truly incredible. This is the current chart that we've got going right now. This is a stock that's currently up uh as of this moment, let's see, we're up uh over 5,000%. 5,000% in a single day.

So, this is a case this is a stock worthy of doing a case study on. I've got some great profit on it today that you'll see at towards the end of this episode. I'll I'll show you how much I made on it, but this was really impressive. This is what we love to see. And if you were trading this without the MACD, you were at a disadvantage. So, adding the MACD is going to be really helpful for you in your trading. Okay. So, step one is trading the right stocks.

Now, what I'm going to do for you guys is I'm going to put a link where you can download my stock selection PDF where I outline my five pillars or the five criteria that I use in setting my scanners. This is how I find the right stocks in real time. So, this PDF is a document that you guys can download. You can print it out. You can utilize it in your own trading. And I'm going to go over the highlights of what I cover in detail in that PDF here in this class.

All right. So, make sure you download this PDF. The link will be pinned at the top of the comments and in the description. So, stocks that make the biggest percentage gains, like 5,000% in one day, they always share similar characteristics of price, float, sector, and news. So, price, I'm sure you understand what that is. That's the price of the instrument that you're looking at. The float is the number of shares available to trade.

And so in the case today of this big move we have the total float on OCTO is 2.68 million shares. 2.68 million shares. That's it. That's that's all the shares that they've issued and that are available to trade. So right now it's traded with 169 million shares of volume. So I want to do a little demonstration for you here. Uh we'll just erase this for right now. So right now um we're going to we're going to kind of compare the relationship here of demand uh and supply.

So on the supply side in this example we've got 2.68 million shares. And on the demand side we've got 170 million shares of volume. And right now we've got our rate of change. And the rate of change is plus 5,000%. That's quite astonishing. So, I'll just move this over so it's easier to read. So, I want to just pose a idea to you that what if, for instance, um 5,000. What if, for example, this had had a instead of a 2.6 million share float, what if the supply was uh 10 times as big?

What if it was a 26 million share float instead 2.6? And what if it still had the same 170 million shares? I would wager that it would not be up 5,000%. In fact, it might only be up onetenth of that, which is 500%. Still significant, but not 5,000%. Or what if it had the 2.68 million share float, but the volume was only 17 million shares? Once again, I think we would only be up about 500%. And so, what we're looking at here is the relationship between supply and demand.

And if any of these change then the result of how much the price can go up will change. So typically what I find and supply is also known as float. So the number of shares available to trade. If you start with a lower float than initially you're going to have a better chance at getting a big percentage move because a 2.68 68 million share float with even just 17 million shares of volume or even just let's say 1.7 million shares of volume could still potentially go up 50%.

Now if a stock or any instrument goes up 50% in one day, it's going to start gaining some attention. People are going to start looking at and asking, you know, what's the catalyst? Why is this thing going up? And how much higher is it going to go? Is there an opportunity for me to get in and ride some of this momentum? Next thing you know, it's got 3.2 million shares of volume. It's up 100%. Then it's got six million shares of volume.

It's up 200%, etc., etc. It just keeps going higher. And now it's going higher because at the very beginning, sort of the chicken or the egg. What was first, the float or the volume? Now ultimately, what was first was a catalyst. There was breaking news. That breaking news was a spark. But because the float was so low, that initial spark where the first first shares of volume came in were enough to create an imbalance where the price moved up rapidly.

So if at the time that that news came out the float had been 50 million shares or 100 million shares, it wouldn't have moved up enough percentage-wise to get those first traders interested and nothing would have happened. So float is a very important component in this relationship of supply and demand. And ultimately these are what create these big imbalances and these are what create these big percentage gains. So price float sector and a news event.

Now sector one of the things that I know right now is that in today's market there's a couple of sectors that are really hot. One of them is biotech and this has been true for decades. Biotech stocks can be very hot. When a biotech stock comes out with a really good headline, those things can fly. But what's also really popular right now are AI catalyst, AI sector stocks and crypto sector stocks. And this stock today that we're going to do the case study on happens to be in the crypto sector and it of course has a news event.

So this is basically what creates the perfect storm for a big move. And I want you to understand that everything that I'm going to go through here is not arbitrary. This is actually based on years of historical data from my own trading. So, this right here is $19.5 million of fully verified, independently audited trading profits. And if we look at this and we look at just for instance, my performance by price, you'll see that I don't make a lot when the price is under $2.

I do the best when the price is between two and 10. Really two and 10, two and 20 is kind of my sweet spot. Now, there's a couple anomalies where, you know, GameStop and a few others that were higher priced that I did really well on. this one today which has gotten a little higher price which I've done well on but generally it's between two and 20 that I do the best. So then when we back up here what I say generally for price is between 5 and 10 is like the real sweet spot.

Now between 2 and 20 is fair but 5 to 10 is where I can really crush it. All right. So then uh and everything that else that's on there comes from uh from from this historical data right here. So this is where we better understand uh for instance that five times relative volume makes a significant difference. So if we go right down here performance by instruments relative volume right here this is this is the table that shows you that almost all of my profit right here is when we have 500 times or five times above average volume.

So why would something have five times above average volume? It's because of that news catalyst. Right? So, this all ties into that relationship between supply and demand. So, here are six criteria for high demand. Number one, if the price is already up 30%. Just the very fact that the price is up is now going to um it's going to pick up more attention. So, more people are going to notice it, they're going to see it, and they're more likely to trade it.

Number two, a breaking news headline. That's the headline that gets everything started. There are times when we have big moves without news, although it's not as common. Number three, when the price is between 5 and 10, that's a sweet spot. Between 2 and 20 is acceptable. Number four, when we have five times relative volume, that's a good reflection of demand. Number five, it's in a hot sector like crypto, biotech, or AI.

And number six, when the time is between 7 a.m. and 10:00 a.m. Eastern, that is a window where we see the biggest moves historically. And then the criteria for low level of supply is that the demand or the fl sorry, uh, I got to just fix that typo. that the float is under uh 10 million shares. So, when you've got a float of less than 10 million shares, change that to supply, that's when exciting things happen. And it's not to say that you can't have a float of uh 15 million shares or 11 million shares.

That's that's probably fine. 25 35, it starts to be less likely that you're going to see a big percentage move. And so, when I look at my scanners each day, what I'll typically see is that the stocks that are on the scans, they have floats that are lower. So, a 600,000 share float, 22 million share float, 6 million, 2.6 million, 1.7 million. Now, this is a little bit of an outlier with 283 million shares. Uh, but you also see that it's only got 11,000 shares of volume and it's at 6 cents a share.

So, probably it's a little bit of an anomaly that it's even on the scanner. 25 million shares, again, light volume. 80 million shares. Okay, so that's a little bit higher. It's up 37%. 37% is cool. 5,000% is a lot cooler. So then this next one 2.9 11 59 1.7. So the majority of these that have volume and that we would consider trading are going to have lower floats, fewer shares available to trade. So this is how the MACD strategy works.

I'm going to look each day for one of the leading most obvious stocks in the market, the leading gainer, the biggest percentage gainer. So on this particular day it was LCFY 294% gain on the day as you can see right here 21 million shares of volume with a 1 million share float and it's up you know 300%. So right here as you can see it's already rallied up. It's pulled back. Could you have bought this dip right here? MACD was open.

Absolutely. Maybe you did. Maybe you didn't. It goes up. It pulls back again. Should you buy this dip? MACD is still open. Looks pretty good. And it goes higher. Pull back. Should I buy the dip? MD is still open. and it goes higher. So, right here, it's pulling back. The MACD is open. Should we buy the dip? Well, it looks pretty good, and it continues going higher. So, what we're looking for is an obvious stock number one that meets all of the criteria that I've already laid out for you for being an Aquality stock.

And we want to be buying a dip. The reality is if you buy the top of a candle like this one right here, it might keep going higher, but you don't have a lot of basis for getting in right there. Whereas if it pulls back, you get a level of support. Now, I'm going to show you this entry in a bit more detail in a moment, but right there, that's $77,000 in profit on the on this day. Now, 51,000 of it came from LCFY. So, I'm focusing on trading obvious stocks.

BBLG was one of the others I traded. That's the second leading gainer. GCTK, CYN, HCWB. Most likely at the times that I was trading them, they were both up quite a bit, which made them pretty obvious. So now, this is that uh setup on PRTG that I showed you before. There's that big dramatic MACD crossover, but look at PRTG. What I'm trying to show you here is that this was the most obvious stock in the entire market on this day.

It was up 178%. Now, what about this day? Oh, and so there you go. There's the $53,000 of profit. Now, what about this day? BTCM, this was up 300%. Now, some days the most obvious stock, like the case is today, will be up 5,000%. Other days, it's up 100% or 75%. In this case, it was BTCM up 314%. And every time this thing pulled up when the MACD was open, which was from here to here, and again, from here to here, it kept moving higher.

And so, this is a day where I locked up $79,000 in profit. And I wouldn't have been able to do it if I hadn't been using the MACD. Now, this was today's trade, and this was just in the morning. So, just in the first part of the day when this thing topped out at $54, I locked up over $30,000 in profit on it. Now, at that time, it was up well, let's see, I guess it peaked at about 3,500% right up here, $3,800%. So, that was the peak right there.

And if again you look back at this at the MACD and every time the MACD was open and it had a pullback, this thing kept rallying higher. So how do we execute on this strategy? Number one, if you haven't already traded with real money before, you should set up a simulator. Do not trade with real money till you've proven you can make money in the sim because trading is risky. And I should tell you, my results are not typical.

I've been doing this for a really long time. So make sure you set up a SIM account first. If you're trading with real money already, that's fine. But as you're learning a new strategy, I still encourage you to use uh a simulator. Number two, set up your scanners using the criteria of stock selection that I already shared with you. If you want to download the PDF, the link is pinned at the top of the comments and in the description.

You can download that PDF and then you can program your scanner with those settings. Now, if you use the software that I'm using every single day, which is uh right here, then the scanners are already programmed for you because they're using my settings. So, that would be fine as well. All right. So now number uh four, we take entries with a 2:1 profit to loss ratio. And number five, we take profit at an exit indicator.

I'm going to share with you my top four indicators in just a moment. So step one, stocks hitting the scanner. This morning, OCTTO starts hitting the scanner. Boom, boom, boom. This is at 658 in the morning. It was already up 200%. So I knew this thing was worth watching. So I'm going to back this up to that first trade that I took, which was way back at 658. So 658 this morning. Let's see. It's right in here. And what you can see, and we'll go full screen on this, was that the price had already made a big move.

We'd had this first rally. And so the MACD was open right there. It pulled back. It popped higher, pulled back, and then it pushed a little higher and then started to roll over and the MACD went negative. So no trades in this area right here. And then right there, the MACD crosses over. It pops up. It pulls back right here. And then it pops up to a high of about $4. So the MACD is positive. The MACD then momentarily goes negative as you can see right here as we get this is it from 4 in the morning.

So it pulls back, it goes sideways. This is 4:30. This is 5. And then let's see right here at about 6:49 it drops and then it pops back up and the MACD swings to positive. So, as it swings back up right here, I bought this dip right here going into 7 a.m. So, first dip, second dip, and it pops up here to a high of 480. So, those are my first few trades on it. Now, when it pulls back right here, I sell the whole position.

I didn't know this was going to go to $80 a share today. There's no way I could have known how much it would go up, but what I could control is how much I was willing to risk. And so, when the price dropped below my entry, I said, "All right, I'm going to sell the rest of it." It pulls back. MACD kind of goes negative for a second. Then it goes back to positive. And right there we get another micro pullback and a squeeze up to 520.

Then it dips down, a little false breakout, and then it rips here up to a high of six. And it keeps going higher. It goes up to six. It goes up to seven. Then it pulls back again. MACD flips to the negative. So now the MACD is negative. We're going sideways. And we got to wait for it to cross back to positive. It crosses back to positive right here. So now I'm back willing to consider trading it. It pops up. it pulls back.

And so now you've got more trades right here on each one of these pullbacks. So I'm buying pullbacks when the MACD is positive. When the MACD goes negative right here, I'm not trading any of this. Don't want to touch it. Don't want to touch it. MACD goes positive right here. I'm back interested and buying this pullback right here. And that was my best trade of the day right there at $9 and the squeeze up to 12.88. I mean, that was right.

That was a fantastic setup because at that time, how much was I risking? So, my risk on this setup is the low of the pullback. So, the low of this red candle right here was $8.66, which means my entry at about $8.90, I was only risking about 25 per share. So, with 10,000 shares, I was willing to risk $2,500. How much did I need to make? I was looking for a squeeze up to $950. That's $5,000 of profit. Ended up going not just to 950.

It went to 10. It pulls back. Goes to 1050 to 11 all the way to 1288. And I got out right there. And that was where I booked $31,000 of profit on the day. It pulled back a little bit more. It came back up right here. It pushed even higher. And I actually did not take that trade. And the reason was because I didn't like this topping tail right here. Anytime you have a topping tail like that, it is bearish. It's very impressive this was able to rally in spite of that candle.

But for me it was better to be safe than sorry. So the so in terms of how to approach this strategy, the stock hits the scanner. I then am thinking about risk. Can I get a 2:1 profit to loss ratio? So I'm going to risk a dollar to make $2. And as long as I'm risking a dollar to make $2, I only need to be right 33% of the time to be break even. Now, if we look at my metrics today or this is metrics year-to- date, my average winners are 17 cents per share.

So, we're not talking about huge wins. I get in, I get green, I get out. My average losers are about 13 cents a share. So, the winners are bigger than the losers. And the accuracy this year is greater than 70%. I've maintained really good accuracy. So, how do I know whether or not I can get that 2:1 profit to loss ratio? It's by waiting for the first pullback. So if you miss the first move, just wait for the first pullback.

And this is what it looks like. You get the squeeze up and then one candle of pullback. And so right now, if I was going to get in, this would be my max loss. I would buy right here, looking for a squeeze through the high and a continuation higher. Of course, the MACD would have to be open and positive. Now, we get another red candle. That's fine. What's my new entry? Potentially right here. If this next candle goes green, my max loss is the low of the pullback.

Right there, I'm in the trade. All right, I've got my max loss set set right down here. Target's still a squeeze through the high. And that's the type of resolution that we want to see. So, when do I sell? Number one, if we see a high volume red candle, I've got to get out. Number two, if I see a large topping tail like I just showed you, I've got to get out. Number three, if the stock is no longer obvious, or number four, if I see a large seller on the level two.

Those are my exit indicators. And this is the MACD strategy that you guys are going to see me trading every single day. But I'll tell you something, trading is difficult, and you don't have to do it alone. So, if you want to watch me trading stocks just like OCTO in real time, make sure you check out a two-eek trial here at Warrior Trading. There'll be a link as well pinned to the top of the comments and in the description.

And I look forward to seeing you in the chat room. Reminder, as always, trading is risky. My results aren't typical. So, please manage your risk, take it slow, and I'll see you guys live streaming tomorrow morning at 7 a.m. Eastern Standard Time.