How to Trade The Inside Bar Pattern

One of the most occurring patterns in stock markets is the Inside Bar Pattern. This is prominent as it is hard to decide what will the next move be as this pattern can be a continuation or a reversal pattern (as well). In this article, we’re going to discuss how you can trade this pattern using the Inside Bar Strategy and what other factors contribute in deciding whether a reversal is coming or the trend would continue.

What is an Inside Bar (Image credits – elitetrading.org)

Before moving forward, it is important for you to keep in mind that this pattern occurs very frequently. However, it is very tricky to predict whether a reversal is coming or if the price action is just haunting for a bit before moving further downwards.

Trading an Inside Bar Pattern Based on News Sentiment

Sometimes the news sentiment plays an important role in determing the movement of the price action. The strategy here would be – If the stock is in a downtrend and if a bad news about the stock comes, then chances are the support is going to get broken and a fall can be continued.

Inside Bar Strategy (Downtrend)

Similarly, if the stock has already formed an Inside bar pattern and is hovering around some specific levels, chances are that when a good news like a good result (or any appreciated action taken by the management) is declared, the price action may reverse and reverse.

Reversal due to a positive news.

Trading based on Support and Resistance Levels

Identifying Support and Resistance Levels can also be of great value if you’re looking to trade in this pattern. Generally, if the pattern occurs at a major support level, then there are high chances that a short-term reversal is due. Similar is the case with the Resistance levels. Do checkout out our article on getting started with Technical Analysis if you’d like to know more about Support and Resistance areas.

Breakouts/Breakdowns

Next, we have breakouts and breakdowns that can help you in confirming the direction of the price action. For example, if the pattern has already been formed and the next candle breaks the low of the ‘mother candle’ (forming a new lower low) then there is a high chance of the price moving downwards. Similar is the case with a breakout.

Things to know before trading this pattern

Though the risk to reward ratios in trading Inside Bar patterns is pretty high, yet novice traders should not trade this.

Why? Since this pattern can be identified pretty easily, many traders get excited and opt-in to take up a position without waiting for other signals to confirm their strategy. And since this pattern is highly unreliable (reversal or continuation can happen), there is a 50% chance that the traders might book a loss.

Also, if the price action goes into your favour, then remember to set up a strict target and stop loss. Why? This is because historical data suggests that a reversal after this pattern has occurred is very much possible. One way to set up the targets can be identifying the next immediate strong support/resistance level and wait for price action to achieve it.


Lastly, although there are website or articles that have blatantly put in links to books and long articles for you to read, we think that by simply understanding the basics (mentioned above) can set up your fundamentals pretty straight.

You can move to reading books when you thoroghly know the basics and can identify which piece of information is useful and which is not..

We hope you like this article. Do follow us on Twitter for more updates.

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How to Generate Regular Income from Stock Market

Majority of the people always think of investing in a stock market as ‘Gambling’. Majority of the people also don’t believe that they can generate income consistently from the stock market itself. That is why you might have seen trading QnA blogs and forums flooded with questions like “How can I generate regular income from short term trading”, “Can traders become millionaires?”, “Is investing in stock market safe?” and so on.

In this article, we’re going to discuss some tips that can help a novice trader/investor like you, who is new to the market and looking to generate a steady income by investing in stocks.

Do not invest in Mutual Funds

While you may have heard of many people talking about how they’ve invested millions of dollars of their savings in mutual funds, it is not necessary for you to follow their advice!

Mutual funds are for those who don’t know anything about stock markets or don’t want to know. They are handled by experts and are generally suitable for those who’ve parked their money for a long duration. There are short term mutual funds too, but investing in any fund would mean that you’re trusting someone else to invest your hard-earned money. Not that it’s wrong in any way, but you wouldn’t gain any knowledge about the markets if you do that. Also, short term mutual funds often have a lock-in period (3 months). So technically, you’d be charged some extra bucks if you tried to redeem your investments before that stipulated time period.

Hence, you’d have to completely avoid investing in mutual funds if you’re trying to generate income consistently.

Learn the basics terms used in Stock Markets

This idea would be obvious to you, however, many people don’t realise learning about the markets first and then investing. The result? Huge losses. These are the people who then label investing in the stock market as gambling.

Nobody ever became successful in a skill without learning anything about it. Be it shooting an arrow, playing Football or learning Math, if you want to earn from that skill, you’ve got to learn about it first. And to be clear we’re not suggesting to learn everything about stock markets here. Simple terms and their significance in the market can help you quickly make your way through achieving small income daily from the stock market.

Terms like Large Cap, Mid Cap, Small Caps and their importance in the stock market can give you ideas about some stocks that are not that volatile and can generate steady profits in a short span of time.

Find a mentor

A mentor is someone who can guide you in understanding the stock market in an easier way. They often teach you about concepts and basics of how chart patterns work and what should you learn about a particular stock before investing all of your money in it. They are just like teachers who lay down a path for you (like a course curriculum) so that you know what chapter to move on after reading and practising the existing chapter. Some mentors also give inputs (buy/sell call) and their strategies on trading a particular stock the next day, because they can foresee a possible momentum in the stock. You should bag every chance of understanding what they’re trying to say and why do they believe the stock would experience a huge momentum in some days.

Also, nowadays, there are mentors who do personalised coaching and who can support you and answer your queries. So yes, having a mentor that you can look up to definitely helps in the learning.

Useful terms to consider

Delivery Percentage is just another term in the stock market that you can look up to for taking short term trades. This term is highly underrated but it can give you an insight into whether the stock is going to go up or not. Delivery percentage means the number of people who have invested in the stock instead of buying and selling it on the same day. You know there is something cooking up when you see the average delivery percentage shoot up from 50% to 80% (this means people are investing in this stock heavily).

Volume is a great indicator which can tell you a lot about the movement of the stock. We’ve discussed briefly about Volume in this PDF. An increase in volume means that a huge momentum is taking place while at the same time if the volume remains stagnant for a few sessions, it is assumed that the stock is consolidating and going sideways.

Support and Resistance is another important term to consider if you’re looking to trade in the market. Marking support and resistance levels is crucial if you want your trade to be a profitable one. Almost every trader uses/analyses support and resistance levels before taking up any position.

Lastly, knowledge about candlesticks is must if you want to survive in this game. It is rightly said that every candlestick which is formed on the chart has some story behind it. It is also true that by studying the latest candlestick that is formed on the chart, you can predict where the price of the stock might move next.


We really hope this article gives you an insight on how to generate regular income from the stock market. If you’re looking for some more knowledge/tips and tricks, then download our free PDF on Price Action Strategies.

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Getting Started with Technical Analysis

When we start out to learn something new, where do we first head out to? The internet. The internet is filled with knowledgable content if you wish to use it for that purpose and when it comes to learning Technical Analysis, then too there are no surprises. If you’re a beginner who’s just heard the word Technical Analysis then look no further. ‘Getting started with Technical Analysis’ will provide you with a detailed guide on learning technical analysis from scratch.

Start with learning about components of the chart

Be it any professional intraday trader, they always know their charts before entering into a trade. A chart is a graphical representation of the price action datapoints. Charts are the only components that can help you analyse charts quickly and accurately (all by yourself).

Not to forget if you can understand the physcology of the market (whether the price is going to up or down) by looking at the chart itself!

Free online resources to consider:

  • Learn CandlesticksLink
    • The first component that you should learn is Candlesticks. These are sort of the primary components and without understanding what a candlestick is, you cannot just learn the market psychology or technical analysis.
    • Once you are done with understanding what candlesticks are, the next item to learn is about candlestick patterns. No matter what strategy you’re using, just knowing about the candlestick patterns can help you as a confirmation signal. Thus aiding you in taking only fruitful trades and preventing you from the bad ones. You can find various free online resources on this topic.
  • Time FramesLink
    • Once you’ve understood what candlesticks are, the next topic is to learn about different time frames. Why? Well, time frames are your best friend when it comes to intraday trading/ swing trading or just investing. For example, by switching over to a longer time frame you would be able to identify the resistance/support levels (covered later) and the current trend of the stock.
  • Indicators
    • Indicators are widely used and heavily relied on by some traders. In short, Indicators give you signals based on historical data. The fact that they are based on past data makes them very accurate and if you really know how to use them, you can create a winning strategy for yourself too.
    • Click on this link to learn more about indicators.

Learn about basic principles of Technical Analysis

Now that you are familiar with the charts, you might want to learn the basics of technical analysis. For example, you should clearly know what are and how to draw the support and resistance levels on the chart. There are a lot of video series/tutorials on youtube for this. However, we found this version of the explanation quite easy to understand.

Once you understand the basic principles of technical analysis, do learn the patterns that the candlesticks form. We recommend checkout out Sasha’s channel on Youtube (link).

Practise reading the charts before you trade

One problem that arises when you’re soo hooked into reading charts is that you want to practice your analysis instantly. Not that it’s a bad thing, however, we wouldn’t adivce you to use real money just yet.

What you can do is – do paper trading. Paper trading simply means that you trade with virtual money and make/lose virtual money only. All of this is for free and you don’t need to bother about spending cash before you begin to trade. We recommend using TradingView’s Paper Trading feature for this.

Find a source from where you can confirm your analysis

When you’ve paper traded for quite some time and you’re confident that you earn some real cash in the market, it is time to take the leap. All you need to do is open an account with your broker and then get started placing orders.

It is often beneficial to verify your analysis with some other sources before actually taking up any position. Be it from a renowned technical analyst that you follow on social media or software as a service that you’re subscribed to.

Understand that Profit and Loss are part of the game

An often missing component when learning about technical analysis is that people forget about their money management strategies. They only focus on drawing lines on charts and defining levels.

Money management simply means managing your risk apeptite. So that if you book a loss, you can have plenty of backup fund to trade with the next day. Why the next day?

For beginners, it is often recommended to do only one trade per day. This helps a trader to conserve their booked profit and not do overtrading. On the other hand, if you’ve booked a loss then there is a high chance of you taking up another trade to compensate for the lost amount. The term for this is revenge trading (don’t do that).

There are various other free online resources that can teach you more about such methodologies that can help you strategise and plan accordingly.


Lastly, although there are website or articles that have blatantly put in links to books and long articles for you to read, we think that by simply understanding the basics (mentioned above) can set up your fundamentals pretty straight.

You can move to reading books when you thoroghly know the basics and can identify which piece of information is useful and which is not..

We hope you like this article. Do follow us on Twitter for more updates.

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Avoiding distractions and staying focused while trading

We all get distracted at some point of time or other, be it the daily chores or other time-consuming tasks. Especially if you’re a trader, distractions can literally make you lose money!

We all know about coronavirus and its aftereffects on our daily routine. The lockdown has made people trade from their homes instead of offices. Although a lot of day traders trade from their home only. The main concern arises when while deciding on the strategy that you want to take up the trade with, your mind wanders of to another task. Don’t worry if it happens to you, as this is a common problem that many of us day traders face and although there is no proper solution to it.

Go into total lockdown. Literally.

We did a survey in the past on how to concentrate when reading a chart. Apart from all the answers that suggested that one should keep a clear screen and avoid all drawings/indicators or keeping the background white and so on, the one answer that really got our attention was meditating in a quiet environment for 5 mintues before you continue reading the chart.

The approach is highly effective in case of trading too. Sitting in a quite environment with 5 minutes of ‘eternal’ relaxation, helps the mind keep calm. This way there is less chance of you ‘jumping’ straight into taking up trades in hurry just ‘to be done with the day and the trade’.

Put your mobile phone on airplane mode

This is a money-making business. If you could just keep your phone on mute or better on aeroplane mode then the world wouldn’t end! This applies to not only trading but only on other activities which require you to stay focussed. Keeping your mobile phone on silent mode means no notifications, no surfing social media, not checking out any recommendations or buy/short calls on telegram. Even if you make a loss in that trade, you’d be 100% satisfied with the results because you’d have gained an authentic experience.

Have a distraction recovery plan

Let’s assume that you are expected to be distracted. No matter how many precautions you take, there’s always something that you’re going to get distracted too. A simple mind trick is to have a recovery plan all set in place. Notice that these are all hacks to control how your brain works and it is important to keep control of what you can take care of! As after taking a position, you’re only left with a hope that you’re target is achieved.

So, after the event (which got you distracted) has taken place, go back to your screen and before taking any actions, just relax and try to remind yourself from where you left off.

For example, for me, I usually look at the chart patterns that I was working on and revise the strategies that I had in my mind (check my positions too if I have any). Once I’m done with it, I look at the stock watchlist one last time and look at the possible support and resistance areas. When I’m confident about my strategies then only I initiate a trade.

Not only this will help you be in control of the situation, but it will also help you to not do panic trading and then fearing over the loss that you’re making.


So there you go, having a distraction recovery plan is a must if you’re sitting at home and doing intraday trading.

We hope you like this article and try to implement it the next time you take up a trade.

Do follow us on Twitter for more updates.

4 Useful Strategies for Range-Bound Markets

Range bound markets are pretty common in the markets. Trading in a range-bound or ‘choppy’ market is a bit of a task in itself and many times, it so might happen that you can book an unforeseen loss, rather than an expected profit. This is because of the missing ‘trend’ which essentially tells the trader in which direction the price action might move.

Range bound markets or choppy markets are bound to happen most of the time. This is the period when the stock is consolidating just before breaking out or breaking down. Though trading in these ranges is pretty tough, many expert traders do scalping or even initiate trades based on the support and resistance levels. Below are 4 such techniques that you can use while trading in a choppy market.

Bollinger Bands

Bollinger Bands is an indicator rather than a technique. Trading in a choppy market using Bollinger Bands can be quite profitable for a trader.

The idea is simple. If as a trader you’re thinking of going long then buy when the price action candle touches the lower band of the Bollinger Band (default setting). And then sell when the price action touches the upper Bollinger band.

Similar is the case with short selling. A trader can short the stock when the price action touches the upper band and buy it when the stock reaches the below band.

Support and Resistance

Support and resistance are another set of key ‘indicators’ that can tell you when to initiate a trade. Many traders trade based on understanding where the support and the resistance stands (even in the trending markets).

As shown in the example above, one can take up a long position as the stock moves up forming a long green candle. The stock, then, can be sold when it hits its resistance level.

Marking support and resistance level is not only important in sideways or choppy market, but it is also helpful when taking up a trade in the trending market.

Why and how? Let’s take a look at the third strategy.

Short term breakouts or breakdowns

You may be familiar with breakdowns and breakouts. If not, then a breakout simply means that the price action breaches or breaks out (moving upwards) of the resistance. In the same way when the price action breaches or breaks down (moves further below) the support area, then it is considered to be a breakdown.

To sum this strategy up in simple words, if trading in a choppy market, a trader can switch to a smaller time frame so that more candles are visible to analyse. Once there are enough candles to draw and decide patterns on, a trader can then look for possible mini breakouts to book some quick profits like in the image above.

Actual Breakouts and Breakdowns

The difference between actual breakouts and breakdowns and short term breakouts/breakdowns is that when an actual breakdown/breakout happens in a sideways market, then it considered that the market has changed into a trending market. While at the same time, short term breakouts/breakdowns may or may not mean an actual trend reversal.

What this means is that lets say the price action is continuosuly testing the resistance level for 3 or 4 times. What essentially happens is that all of the sell orders or sellers fulfill their orders whenever the price action tests the resistance level. At some point of time, there would be not enough sellers to maintain that resistance level, and hence the bulls, move the price action beyond the resistance level. This takes the price of that stock further upwards, till the level where the stock faces another resistance.

The same theory applies to a breakdown as well. And hence as a trader if you witness a breakout at a well formed resistance level in a sideways market, then you can go long. Otherwise, you can short sell the stock.


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We hope you like this article. Do follow us on Twitter for more updates on Technical Analysis and money management.

Best trading strategy if you’re using less capital or have a small trading account

It is very common nowadays (due to the internet) many people are opting to learn about stock markets and the profits and the losses it can give. While most of the new traders lose money instead of booking some profits, if you’re a person who’s just starting out and trying your hands to make some quick bucks without ‘risking it all’, then read on!

Tips

The sections in this articles will help you strategize and build up your trading plan so that you can last in the market for a long time. Let’s start with tip number 1.

Think of trading as a survival game

If you could look at the bigger picture, trading is just a survival game in which you participate with the hopes of being at the top and defeating all the obstacles that come your way. The only difference is instead of your life, it is your money which is at risk.

Hence, your primary objective should be to avoid losing your initial capital. What this means is that let’s say you start out with a $100. You trade for a month and now you have 3X of the initial amount. This is $300. Let’s assume that the next month you lose all your profits and even some portion of your initial amount. Finally, at the end of the month, you’re left with 50$ in hand loosing out 50% of the amount you initially invested.

Do not Day Trade

Let’s be honest. You cannot be an overnight millionare with just 100$ invested. The reality is that trading is a process rather a one time flick. You earn some and lose sum and at the end of the day, all you should care about is about the losses rather than the profits.

The reason to not day trade is because of the fluctuations in the price (volatality) which makes every 9 out of 10 investor/trader loose their money. Instead, you should focus on Swing trading.

Swing Trading

Swing trading involves you taking up a position and holding it for a day/week or a month. What this gives you, is an exposure to the market. With swing trading you could have been invested while at the same time testing out your strategies and predicting the price. It also makes you feel responsible and aware of the amount you’ve invested in buying/shorting that stock. Because its only when you’re in the game, you start to notice all the rules and the tips and tricks.

Swing trading also gives you the benefit of spending some time to study the market. Day trader requires more concentration on the specific time frame and requires a trader to be aware of the trend the specifically the price action. With swing trading you could look up the daily chart, analyse the trend and make some notes on your strategies and predict where the price action would go next.

Not to forget, the point is to stay in the game for as long as you can and learn about how the market moves.

Pick up an initial strategy

Now that you’ve decided to do swing trading, it is time for picking up a strategy to take your positions. Remember to not invest in the market randomly. That is a few novice traders buy a script when they see the script’s price falling. This is a very common mistake and can result in huge losses as it can be that the stock is already in a downtrend.

We recommend using this strategy to start off with and later build up on this to increase the accuracy and book profits and avoid losses.

Conclusion

We decided to write a dedicated blog post on this as we figured that a lot of users who’re registered with us are beginners. And as trading is a never ending ‘learning’ journey, we hope to have provided value to professional traders as well through this article.


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Which is the best time frame for intraday trading

If you’re just a beginner and have started foraying into the world of trading and investing, you might have heard of the term ‘intraday trading’.

‘Intraday trading’ is also known as Day trading. Since the inception of the internet and especially discount brokers, day trading has seen a huge surge in the number of traders that complete their trade(s) within a day.

Almost all intraday traders take up their position by seeing the candlestick charts and analysing the patterns that the price action forms. While patterns are mostly formed with the candles that the price action forms, it is essential to note that the longer the timeframe you choose, the less number of candles are formed.

Timeframes are essentially the time periods or resolutions where the candles depict whether the bears are strong or the bulls are stronger. So for example, if you’re an investor who’s looking to invest in the market from a long term perspective, you might want to consider looking at the monthly or the weekly chart.

Couple of Tips

Let’s start with some tips first.

If studying a chart for the first time then it is recommended to check the daily and the weekly chart first. You can map out the strong support and resistance level before moving into the smaller time frames.

Next, find out the trend in the daily/weekly chart. Not only this will help you to be cautious of the support or the resistance level that the price action is near at, but it will also help you to know where you want to go long or go short.


Time frame based on strategies

Below are a few strategies which normal traders use in their day to day trading.

Trading Based on Patterns and Price Action

For traders who prefer drawing patterns on the charts and trendlines, then it is best to utilize the 5, 10 and 15-minute time frame for this. Remember the higher the time frame, in this case, the more accurate the pattern can be.

If, however, you’re an experienced trader who likes to be ‘involved’ at the moment, the 1 min chart can also be helpful.

Trading Based on Scalping Technique

Scalping strategy

Scalping is another way of profit booking. Many established and cash-rich traders prefer using this technique instead of the above one. Scalpers trade on candles rather than patterns meaning that they wait for gains in points rather than whole numbers and prefer to exit their position within minutes or even seconds.

For that reason, a 1 min or a lesser time frame chart would suffice for them.

Time frame based on indicators

If you actively use lagging or leading indicators for your trades then here are the time frames you should follow:

For intraday purpose, if you’re using a lagging indicator (like MACD, Bollinger Bands and so on) then it is advised to use a 5 min chart. A 1 min chart can also be considered in this case however note that the accuracy might get affected.

If in case you prefer using leading indicators like stochastic or an RSI indicator, then it is recommended to use a higher time frame rather than a lower one. This is because, in lower time frames, there are high chances that the stock may instantly go into an overbought or an oversold zone making you a scalper rather than an intraday trader.

However, if you’re a scalper who prefers indicators then for a leading indicator, you might want to use a 5 min time frame chart, whereas for a lagging indicator a 3 min time frame chart would also do.


We hope you like this strategy and try to implement it the next time you take up a trade.

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Drawing Support and Resistance lines correctly – Setting correct targets and stop-loss

Often at times after taking up a trade, you would have experienced a huge profit at first (while the price action is yet to hit your target), but then suddenly the price action reverses and hits your stop-loss. Sad right?

So what went wrong? Why was there an instant reversal and why did the price action did not hit your target?

There are high chances that the resistance/support level that you drew on the chart as your potential target/stop-loss was wrong. And you can’t blame anyone for that, as knowledge is vastly available on the internet and sometimes it is confusion that plays a part in your analysis being wrong and the rest of the time its incorrect knowledge fed to you.

Before moving forward, let’s clear out one Myth:

If the price action breaks down and reaches the support level, then it is sure to bounce back.

This is a huge misconception when taking up the trade and there is no guarantee that the trend will reverse from the support level or bounce back for that matter.

Same is the case with resistance level. If the price is moving up and is at the resistance level then it is not guaranteed that it will come down.

Support

An area where the price increases due to lower supply or higher demand. What this essentially means in simple terms is that this is an area where the buyers see that the price is at a very attractive level and so they enter into the trade. Thus when they enter, the price shoots up creating green bull candles.

While many of experts call this area – a line, for you to take up this trade successfully, you should take up this trade only if the bounce back crosses the area of the rectangle or if there is a breakdown and the price breaks the area of the rectangle and continuing its downfall.

Resistance

An area where the price reduces due to higher supply or lower demand.

The meaning of this in simple terms is that this is an area where the sellers see that the price is at a very attractive level and so they enter into the trade. Another reason for the formation of a resistance area is that often the buying volume decreases, as a result the sellers overpower the buyers and the price hits that resistance area.

Drawing Support and Resistance levels

Drawing support and resistance levels is fairly simple. All you need to do is

  • switch to your convenient time frame
  • Zoom out the chart 5 times
  • Draw the obvious support/resistance levels that you can see with the naked eye (Notice that when the price action breaks out, the resistance level will act now as support level and vice versa)
  • Adjust the areas so that the area captures maximum wicks/candles and where you could see an immediate bounce back.
Support and Resistance levels

Strategy to prevent trading at false breakouts/breakdowns

A common strategy that almost every trader follows to prevent trading at false breakouts/breakdowns is to wait for the second candle to break the breakout’s/breakdown’s high or low respectively.

This strategy will not only confirm that it is a pure breakout/breakdown, but it will also allow you to book handsome profits if you’re trading with large quantities.

The stop loss should be the breakout candle’s low (if it breaks the resistance) or the breakdown candle’s high (if it breaks the support level). And yes always remember that breakout is when the resistance is broken whereas breakdown happens when the support level is broken.

How can I obtain 90% accuracy in taking up a trade based on this strategy?

To obtain 90% accuracy, you’d have to use another tool or an indicator for confirmation of a breakout/breakdown. We prefer using an MACD indicator in our trades as it is widely used and a highly reliable indicator.

Combine MACD with the concepts above and you get a powerful and a 90% accurate trading strategy.

We’ve expalined this strategy in our previous post.


We hope you like this strategy and try to implement it the next time you take up a trade.

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Simple MACD strategy with 90% accuracy – Book profits in the stock market easily.

We’ve all waited for the right time to buy/sell a stock when the MACD gives us the respective signal, however, most of the time the signal that we receive is either a false signal or the price action turns against our favour.

Before we start with the topic let us recap a bit and understand how and what MACD is.

Almost 1 out of 5 traders in the stock use the MACD signal to confirm their strategy and decide whether they want to go long or go short. Now let’s understand what MACD actually is.

MACD – Moving Average Convergence Divergence is a lagging indicator and is praised by investors for highest accuracy that it provides. It is often said that if you’re unhappy with the results of other indicators and you want to test out a new indicator so as to improve your ‘win’ percentage, then you should definitely consider giving MACD a chance.

How to read?

The MACD graph contains a zero line. This is often regarded as the baseline or the ‘neutral line’ and a MACD (Blue line) wave hovers over this zero line (see the image attached). Notice that there’s another wave in orange. This wave is called as the ‘Signal wave’ or ‘Signal line’.

The 0 line

MACD is calculated from the following method:

26 EMA - 12EMA = MACD line
9 period EMA of MACD line = Signal line

It is to be noted that the signal line gives the buy and the sell signal to the investors.

When to Buy?

An investor should go long when there is a crossover of the Signal and the MACD line below the 0 line.

Buy signal

When to Sell?

An investor should plan to close their long position or take their short position when there is a crossover above the 0 line.

Sell signal

If you can see the graphs in the example above, the price action started to go up when there was a crossover of the Signal line and the MACD line below the 0 line.

If you would have taken up this trade then you would have easily booked 60 points in your favour.

How to improve accuracy and avoid false signals?

This is the most common problem that is faced by traders/investors when it comes to applying this signal in real-time. At Bytemine, our analysts realized that one way of increasing the accuracy and making sure the trade is successful is to only take the position:

  • When there is a crossover below or above the 0 line (as discussed above)
  • By taking the position after the second candle (with respect to the crossover) has closed.

Let’s understand this by an example:

In the image above, the crossover happened when there was a big green candle formed. Now to avoid false signals, always ensure that you do not buy during this time. Only take the buy position if the second candle’s close is above the previous candle’s high.

Although, in this case the price did not move as expected, however since our stoploss was placed at the previous candle’s low, we would have eventually booked a profit in this trade.

The same procedure applies to when you are shorting a stock. Only take the trade if the second (the latest) candles low is below the previous candle’s low – all this when the crossover of the Signal line and the MACD line is above the 0 line.

How to achieve 90% accuracy?

Achieving 90% accuracy is possible, yes. However, as a trader/investor you’d have to be careful in taking up the trade and making sure that the price action fulfills all of the setups discussed above.

Once you’re sure, then check the Support and Resistance levels of the stock in different time frames. Draw horizontal lines and mark the potential resistance and support zones. Switch back to the time frame that you prefer trading in and check where does the price action resides now.

If it is near a support level and there is a BUY signal being generated by MACD then you can surely take up that trade. On the other side, if there is a sell signal generated by MACD and if the price action is near a potential resistance level, then you can surely take your short position.


We hope you like this strategy and try to implement it the next time you take up a trade.

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