Hot Reads - Bronze Medal. Developed by Gerald Appel publisher of Systems and Forecasts in the late seventies, the rather grand-sounding " Moving Average Convergence-Divergence MACD indicato r" is actually one of the most commonly used momentum indicators around. It is used to spot changes in the strength, direction, momentum, and duration of a trend in a stock's price.
The MACD is just the difference between a day and day exponential moving average of closing prices an exponential moving average or EMA is one where more weight is given to the latest data. The reason that traders pay attention to varying lengths of moving averages is because they want to figure out how the short-term momentum is changing relative to the longer-term momentum. If the short-term average rises faster slower than the long-term average, the MACD moves upward downward.
Traders use this to suggests that the buying pressure is increasing decreasing. One of the reasons that MACD is so popular is because its trading signals are fairly unambiguous. You can see a good video introduction to its usage here but, in summary, there are three popular ways to use the MACD: Great momentum stocks stay above zero for a long period of time.
Cross overs below zero are usually be ignored since the stock is weak and it is said that trends can not be predicted as easily. Crossovers happen quite frequently.
Another signal, considered more reliable but less frequent, is a pattern called bullish convergence. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual.
You should make your own decisions and seek independent professional advice before doing so. Shares can go down as well as up. I have been making money from the MACD for about 5 years now but you need to know how to use it. Blindly following every crossover can make money on some stocks in some market conditions, you just have to learn which stocks and which market conditions.
However, I would never suggest using crossover on its own. The real jewel in the MACD crown is divergence where the price goes one way and the indicator goes the other but if you look at any momentum indicator e.
I'm always amused when people put up 5 momentum indicators and say "look, all the indicators agree". Well yes, of course they do What I do is use 3 indicators with different timings. I can then either buy in one go on the first signal if the market is strong, or scale in slowly if I'm worried about the timing hindsight trading is far easier than trading the right side of the chart!
My next technical analysis seminar is on Sunday 9th December at a hotel near Heathrow I will show you how I trade using recent real trades or very recent charts. No day-trading; this is for would-be Naked Traders who need a little help with their timing. Details under seminar here: The MACD crossed down nearly a month ago and the worry was that the price wasn't going to manage a new high look back to July and would retreat back to the area but I didn't sell.
Because my other two indicators said that there's absolutely no need. A nice rise today and hopefully a breakout towards the next resistance point at p.
Sorry no chart, I am out and about and it's a bit too fiddly to do on the move. It's trading at a wide discount to NAV so there's also a good chance of a capital gain if and when the discount closes. Better than sitting in cash? Thanks, Smarm - we're setting up some technical stock filtering options at the moment, including MACD, as quite a large number of PRO users have requested this to go alongside the fundamental filters.
We've also beefed up the Charting Options here - http: Stockopedia Features covers in-depth stories on strategies, companies and themes that are relevant to online investors. Investing is hard work. We don't try to over-simplify complex concepts - we prefer to try to help you navigate the detail. Saturday, Nov 10 by Stockopedia Features. Why is the MACD useful?
Interpretation One of the reasons that MACD is so popular is because its trading signals are fairly unambiguous.
Divergences Crossovers happen quite frequently. Unlock this article instantly by logging into your account Login or Register for Free Access. Do you like this Post? Share this post with friends. Murakami 28th Nov '12 4 of 4. You can track all StockoChat comments via Twitter. Stockopedia Features Stockopedia Features covers in-depth stories on strategies, companies and themes that are relevant to online investors.
Technical Analysis Part 25 - Putting it all together: Improving your results Technical Analysis 20th Nov. Whats happening at Staffline LON: Brilliant - You've created a folio! Now let's add some stocks to it. Enter any stocks you own or are interested in, into your folio - Name or ticker is fine.