MACD Moving Average Convergence Divergence

Discussion in 'Technical Analysis' started by adultvish, Jan 29, 2006.

  1. adultvish

    adultvish Active Member

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    hi guys and gurus
    Though I am able to understand a bit about Moving Averages and MACD, yet I need some clarification. MACD is constructed by making an average of the difference between two moving average. The difference of the original two moving average and the moving average of the difference can be plotted as t wo lines, one fast and one slow. Can anyone please help me understanding the complete and true meaning, of the afore stated statement. I will be highly obliged.

    Thanking you in advance.

    Adultvish
     
  2. SRINIPYT

    SRINIPYT New Member

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    Re: Use of MACD

    Hi: Go thro url http://www.worden.com/training/default.aspx?g=posts&t=3978 - listen to Craig's 8 minute presentation on what is MACD - since you know the basics of MACD - PRESENTATION will give you a good insight. u can also visit chart school - www.stockcharts.com and investopedia. we can discuss further once u r thro. srini
     
  3. yoda

    yoda New Member

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    Re: Use of MACD

    adultvish,

    I read a new site that uses elliott wave primarily, but uses the MACD as a confiormation in their studies. They deal with the forex markets and seem to know what they are talking about with the MACD.

    www.capitalcurrencymarkets.com

    hope it helps out

    Y
     
  4. TATrader

    TATrader Moderator

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    Re: Use of MACD

    Thanks SRINIPYT,

    A great video for all TA to view.
     
  5. rajesh.sadhanala

    rajesh.sadhanala Well-Known Member

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    Moving Average Convergence - Divergence

    Hi All,

    Can anyone explain me how it is being calculated and populated. Can anyone taken an example of some stock and explain me. It would be helpful for me to understand it.

    Thanks a Lot
    Raj :)
     
  6. tanewbie

    tanewbie Well-Known Member

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    MACD is calculated as below:

    1st step : calculate 12days ema of close (exponential moving average)(lets call it Fast mov average)
    2nd Step: calculate 26days ema of close (lets call this as slow moving average)
    3rd step: take difference of the abv 12days ema and 26days ema. This is MACD
    4th step : calculate 9 days ema of the diff in step 3 . This is signal line.

    buy when macd crosses the siganl line from below. Sell when macd pierces signal line from above.

    The best use of MACD is finding divergences wrt Price and macd.
    price falling and macd making hihger bottoms is a positive divergence and Price going up and MACD making lower tops is negative divergence.

    MACD as an indicator for trading signals is good for delivery stocks. I use it for whose fundamentals are good. One such stock is ESAB. I am attaching chart of esab with macd.
    I always bot few hundred shs of esab whenever it gave a buy signal. I just sold few shs in Oct meltdown at 390 but it bounced back. As I know the fundamentals of this company I like to add on macd signals.
     
    Last edited: Aug 2, 2008
  7. tanewbie

    tanewbie Well-Known Member

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    attached chart of Garden Silk. An example of negative divergence wrt price and macd.
     
    Last edited: Aug 2, 2008
  8. srisrini

    srisrini New Member

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    Sir,

    Thanks for explaining MACD calculation in simple words. This will enable me set up an excel sheet to follow the indicator.
    Regards.
    Srisrini
     
  9. rajesh.sadhanala

    rajesh.sadhanala Well-Known Member

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    Really Thanks you for ur help. I will just put it what I understood. Please correct me If I miss out anything.

    Calculate last 12 days close of particular stock and find it average price.
    Formula = (day1 close + day2 close ... + day close12)/12 - Fast Mov Avg

    Similary like above for 26 days - Slow Mov Avg.

    The difference is MACD. If the Fast Mov Avg - 80 and Slow Mov Avg - 70. Then difference is 10.

    4th step is confusing. I interpreted it that instead of 26days use 9 days ema. This is signal Line.
    Here the difference is 15.

    Buy if MACD > Signal
    Sell if MACD < Signal.

    Please correct me if I am wrong.

    Regards
    Raj
     
  10. rajesh.sadhanala

    rajesh.sadhanala Well-Known Member

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    Thanks to u for putting up the explanation. I just wrote what I understood. Please correct me If I am wrong anywhere
     

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