Macd??
- Thread starter Ankit Jain
- Start date
hi ankit,
MACD is an abbreviation for "Moving Average Convergence Divergence. The swing trader can best use indicators for decision making when he or she has a clear understanding of their underlying design and assumptions. Those who fail to do this often end up applying the indicators mechanically, which usually leads to costly swing trading errors.
The MA part of the name stands for "moving average." Moving averages are trend following tools that have the power to keep the swing trader on the right side of the trade.
The CD stands for "convergence" and "divergence," or the phenomenon of the moving averages coming together and spreading apart. During a period of strong trend, the two MACD lines will grow further apart (divergence). During sideways consolidation, they will converge or come closer together, often crisscrossing one another several times. MACD is both a trend following tool and a momentum indicator that shows acceleration and deceleration of a trend.
The MACD line itself is constructed from two moving averages -- a 12-period, or faster, moving average and a 26-period, or slower moving average. The computer subtracts the 26-period moving average from the 12-period and creates a single line. I call this the "main line." The next calculation performed is the computing of a nine-period E.M.A. of the main line. This line is called the "trigger line," and it is from the interaction of these two lines that certain types of trading signals are generated.
In using MACD, you should always take great care to synthesize the weekly and daily indicators. I have seen little information on how to do that in books or on the web. As such, here are my conclusions on that important topic...
Weekly MACD should be looked to as describing the trend of the stock from a "trading perspective." When a stock or index is below a downward sloping 40-week moving average, then for the vast majority of time, MACD will be on a sell signal. During periods of countertrend rally, however, there are times when the weekly MACD will issue a buy signal. Even though the primary trend is down, these opportunities should be traded from the long side. (The opposite of these principles is true when a stock or index is above an upward sloping 40-week moving average.)
Daily MACD should be used as the catalyst to enter and exit positions. When weekly MACD is on a sell signal, then fresh sell signals in daily MACD should cause the swing trader to take a short position (assuming other technical indicators on the chart such as trendlines and candlesticks support the trade, of course).
Since MACD is a trend following indicator, it will do a very good job of keeping you in the trade for almost the entire period in which it is profitable. When the daily MACD gives a buy signal, then short positions should be covered. You can then reinitiate a short position on the next MACD sell signal.
One limitation of MACD is that it works very poorly during periods of price consolidation. When MACD begins to generate numerous trading signals back and forth in a short period of time, its buy and sell advice should be ignored.
MACD is an abbreviation for "Moving Average Convergence Divergence. The swing trader can best use indicators for decision making when he or she has a clear understanding of their underlying design and assumptions. Those who fail to do this often end up applying the indicators mechanically, which usually leads to costly swing trading errors.
The MA part of the name stands for "moving average." Moving averages are trend following tools that have the power to keep the swing trader on the right side of the trade.
The CD stands for "convergence" and "divergence," or the phenomenon of the moving averages coming together and spreading apart. During a period of strong trend, the two MACD lines will grow further apart (divergence). During sideways consolidation, they will converge or come closer together, often crisscrossing one another several times. MACD is both a trend following tool and a momentum indicator that shows acceleration and deceleration of a trend.
The MACD line itself is constructed from two moving averages -- a 12-period, or faster, moving average and a 26-period, or slower moving average. The computer subtracts the 26-period moving average from the 12-period and creates a single line. I call this the "main line." The next calculation performed is the computing of a nine-period E.M.A. of the main line. This line is called the "trigger line," and it is from the interaction of these two lines that certain types of trading signals are generated.
In using MACD, you should always take great care to synthesize the weekly and daily indicators. I have seen little information on how to do that in books or on the web. As such, here are my conclusions on that important topic...
Weekly MACD should be looked to as describing the trend of the stock from a "trading perspective." When a stock or index is below a downward sloping 40-week moving average, then for the vast majority of time, MACD will be on a sell signal. During periods of countertrend rally, however, there are times when the weekly MACD will issue a buy signal. Even though the primary trend is down, these opportunities should be traded from the long side. (The opposite of these principles is true when a stock or index is above an upward sloping 40-week moving average.)
Daily MACD should be used as the catalyst to enter and exit positions. When weekly MACD is on a sell signal, then fresh sell signals in daily MACD should cause the swing trader to take a short position (assuming other technical indicators on the chart such as trendlines and candlesticks support the trade, of course).
Since MACD is a trend following indicator, it will do a very good job of keeping you in the trade for almost the entire period in which it is profitable. When the daily MACD gives a buy signal, then short positions should be covered. You can then reinitiate a short position on the next MACD sell signal.
One limitation of MACD is that it works very poorly during periods of price consolidation. When MACD begins to generate numerous trading signals back and forth in a short period of time, its buy and sell advice should be ignored.
hi ankit,
MACD is an abbreviation for "Moving Average Convergence Divergence. The swing trader can best use indicators for decision making when he or she has a clear understanding of their underlying design and assumptions. Those who fail to do this often end up applying the indicators mechanically, which usually leads to costly swing trading errors.
The MA part of the name stands for "moving average." Moving averages are trend following tools that have the power to keep the swing trader on the right side of the trade.
The CD stands for "convergence" and "divergence," or the phenomenon of the moving averages coming together and spreading apart. During a period of strong trend, the two MACD lines will grow further apart (divergence). During sideways consolidation, they will converge or come closer together, often crisscrossing one another several times. MACD is both a trend following tool and a momentum indicator that shows acceleration and deceleration of a trend.
The MACD line itself is constructed from two moving averages -- a 12-period, or faster, moving average and a 26-period, or slower moving average. The computer subtracts the 26-period moving average from the 12-period and creates a single line. I call this the "main line." The next calculation performed is the computing of a nine-period E.M.A. of the main line. This line is called the "trigger line," and it is from the interaction of these two lines that certain types of trading signals are generated.
In using MACD, you should always take great care to synthesize the weekly and daily indicators. I have seen little information on how to do that in books or on the web. As such, here are my conclusions on that important topic...
Weekly MACD should be looked to as describing the trend of the stock from a "trading perspective." When a stock or index is below a downward sloping 40-week moving average, then for the vast majority of time, MACD will be on a sell signal. During periods of countertrend rally, however, there are times when the weekly MACD will issue a buy signal. Even though the primary trend is down, these opportunities should be traded from the long side. (The opposite of these principles is true when a stock or index is above an upward sloping 40-week moving average.)
Daily MACD should be used as the catalyst to enter and exit positions. When weekly MACD is on a sell signal, then fresh sell signals in daily MACD should cause the swing trader to take a short position (assuming other technical indicators on the chart such as trendlines and candlesticks support the trade, of course).
Since MACD is a trend following indicator, it will do a very good job of keeping you in the trade for almost the entire period in which it is profitable. When the daily MACD gives a buy signal, then short positions should be covered. You can then reinitiate a short position on the next MACD sell signal.
One limitation of MACD is that it works very poorly during periods of price consolidation. When MACD begins to generate numerous trading signals back and forth in a short period of time, its buy and sell advice should be ignored.
MACD is an abbreviation for "Moving Average Convergence Divergence. The swing trader can best use indicators for decision making when he or she has a clear understanding of their underlying design and assumptions. Those who fail to do this often end up applying the indicators mechanically, which usually leads to costly swing trading errors.
The MA part of the name stands for "moving average." Moving averages are trend following tools that have the power to keep the swing trader on the right side of the trade.
The CD stands for "convergence" and "divergence," or the phenomenon of the moving averages coming together and spreading apart. During a period of strong trend, the two MACD lines will grow further apart (divergence). During sideways consolidation, they will converge or come closer together, often crisscrossing one another several times. MACD is both a trend following tool and a momentum indicator that shows acceleration and deceleration of a trend.
The MACD line itself is constructed from two moving averages -- a 12-period, or faster, moving average and a 26-period, or slower moving average. The computer subtracts the 26-period moving average from the 12-period and creates a single line. I call this the "main line." The next calculation performed is the computing of a nine-period E.M.A. of the main line. This line is called the "trigger line," and it is from the interaction of these two lines that certain types of trading signals are generated.
In using MACD, you should always take great care to synthesize the weekly and daily indicators. I have seen little information on how to do that in books or on the web. As such, here are my conclusions on that important topic...
Weekly MACD should be looked to as describing the trend of the stock from a "trading perspective." When a stock or index is below a downward sloping 40-week moving average, then for the vast majority of time, MACD will be on a sell signal. During periods of countertrend rally, however, there are times when the weekly MACD will issue a buy signal. Even though the primary trend is down, these opportunities should be traded from the long side. (The opposite of these principles is true when a stock or index is above an upward sloping 40-week moving average.)
Daily MACD should be used as the catalyst to enter and exit positions. When weekly MACD is on a sell signal, then fresh sell signals in daily MACD should cause the swing trader to take a short position (assuming other technical indicators on the chart such as trendlines and candlesticks support the trade, of course).
Since MACD is a trend following indicator, it will do a very good job of keeping you in the trade for almost the entire period in which it is profitable. When the daily MACD gives a buy signal, then short positions should be covered. You can then reinitiate a short position on the next MACD sell signal.
One limitation of MACD is that it works very poorly during periods of price consolidation. When MACD begins to generate numerous trading signals back and forth in a short period of time, its buy and sell advice should be ignored.
That was a good write up . Would appreciate more knowledge based articles on the subject and information on where and how one can learn the basics of this subject. Any links on the net ?? Any software which can be used ??
Will appreciate comments.
Regards
harmads,
http://finance.yahoo.com is a very good site for technical details and graphs on stocks. www.investopedia.com gives a good insight into how technicals works.
http://finance.yahoo.com is a very good site for technical details and graphs on stocks. www.investopedia.com gives a good insight into how technicals works.
Thanks umakaran
for the prompt reply.. I have had a look at these sites, earlier also and feel that they all work on the assumption that reader has some working knowledge of statistics.. is that true ??? I do have good knowledge of maths though, being an engineer by profession but still can you suggest somewhere I can pick up working knowledge on Tech analysis and other tools to get by my desire to be proficient in trading
regards
for the prompt reply.. I have had a look at these sites, earlier also and feel that they all work on the assumption that reader has some working knowledge of statistics.. is that true ??? I do have good knowledge of maths though, being an engineer by profession but still can you suggest somewhere I can pick up working knowledge on Tech analysis and other tools to get by my desire to be proficient in trading
regards
hi ankit,
The MACD line itself is constructed from two moving averages -- a 12-period, or faster, moving average and a 26-period, or slower moving average. The computer subtracts the 26-period moving average from the 12-period and creates a single line. I call this the "main line." The next calculation performed is the computing of a nine-period E.M.A. of the main line. This line is called the "trigger line," and it is from the interaction of these two lines that certain types of trading signals are generated.
The MACD line itself is constructed from two moving averages -- a 12-period, or faster, moving average and a 26-period, or slower moving average. The computer subtracts the 26-period moving average from the 12-period and creates a single line. I call this the "main line." The next calculation performed is the computing of a nine-period E.M.A. of the main line. This line is called the "trigger line," and it is from the interaction of these two lines that certain types of trading signals are generated.
Hello Umakaruna
Frankly speaking i am not understanding this 12 period and 26 period. Can u explain me with example about this.
Regards
Ankit Jain
Hi Ankit Jain
12 period and 26 period refers to the Exponential Moving Averages(EMA) of 12 days and 26 days respectively. MACD is calculated as the difference between the 12days and 26days EMA.
The EMA is calculated for 'n' days as follows.
EMA for the nth day = simple average of prices for the n days.
Current_EMA = ((2/(1+n)) x (Current_Price - Previous_EMA)) + Previous_EMA
Hope this will clarify your question.
12 period and 26 period refers to the Exponential Moving Averages(EMA) of 12 days and 26 days respectively. MACD is calculated as the difference between the 12days and 26days EMA.
The EMA is calculated for 'n' days as follows.
EMA for the nth day = simple average of prices for the n days.
Current_EMA = ((2/(1+n)) x (Current_Price - Previous_EMA)) + Previous_EMA
Hope this will clarify your question.
Hi Ankit Jain
12 period and 26 period refers to the Exponential Moving Averages(EMA) of 12 days and 26 days respectively. MACD is calculated as the difference between the 12days and 26days EMA.
The EMA is calculated for 'n' days as follows.
EMA for the nth day = simple average of prices for the n days.
Current_EMA = ((2/(1+n)) x (Current_Price - Previous_EMA)) + Previous_EMA
Hope this will clarify your question.
12 period and 26 period refers to the Exponential Moving Averages(EMA) of 12 days and 26 days respectively. MACD is calculated as the difference between the 12days and 26days EMA.
The EMA is calculated for 'n' days as follows.
EMA for the nth day = simple average of prices for the n days.
Current_EMA = ((2/(1+n)) x (Current_Price - Previous_EMA)) + Previous_EMA
Hope this will clarify your question.
i am some wht getting it.. can u explain with an example or a chart of any co.
Regards
Ankit Jain
Hi harmads,
By simple average I mean to say the mean of closing prices of a stock over a period of time. (25th Jan 2007- 13th Feb 2007)
if 173.4
167.7
171.05
172.3
171.1
169.95
165.05
169.35
171.6
171.9
166.8
160.8
are the prices for 12 days, the simple moving average is 169.25.
For the next day if the closing price is 158.85, the 12days EMA is calculated as follows:
(158.85-169.25)*(2/13)+169.25=167.65
it is to be calculated over a period till the latest closing price.
Similarly, you calculate the 16days ema for the period from 25th Jan 2007 to 21st feb 2007 as
173.4
167.7
171.05
172.3
171.1
169.95
165.05
169.35
171.6
171.9
166.8
160.8
158.85
163.8
157.7
158.95
mean of these prices for 16days i.e., = 166.89. Now the 16 days ema for the next day if the closing price is 155.9 is
=(155.9-166.89)*(2/17)+166.89=166.46
This calculated value will become the current ema for the next ema.
The macd is the difference of the values of the two emas. You get this data only from 21st feb 2007 for this example.
date 12ema 16ema macd
13feb 164.59 166.89 -2.3
The last column is the macd value. To smoothen the curve, we can calculate an ema for this column also.
Hope I have explained clearly.
By simple average I mean to say the mean of closing prices of a stock over a period of time. (25th Jan 2007- 13th Feb 2007)
if 173.4
167.7
171.05
172.3
171.1
169.95
165.05
169.35
171.6
171.9
166.8
160.8
are the prices for 12 days, the simple moving average is 169.25.
For the next day if the closing price is 158.85, the 12days EMA is calculated as follows:
(158.85-169.25)*(2/13)+169.25=167.65
it is to be calculated over a period till the latest closing price.
Similarly, you calculate the 16days ema for the period from 25th Jan 2007 to 21st feb 2007 as
173.4
167.7
171.05
172.3
171.1
169.95
165.05
169.35
171.6
171.9
166.8
160.8
158.85
163.8
157.7
158.95
mean of these prices for 16days i.e., = 166.89. Now the 16 days ema for the next day if the closing price is 155.9 is
=(155.9-166.89)*(2/17)+166.89=166.46
This calculated value will become the current ema for the next ema.
The macd is the difference of the values of the two emas. You get this data only from 21st feb 2007 for this example.
date 12ema 16ema macd
13feb 164.59 166.89 -2.3
The last column is the macd value. To smoothen the curve, we can calculate an ema for this column also.
Hope I have explained clearly.
| Thread starter | Similar threads | Forum | Replies | Date |
|---|---|---|---|---|
| M | Need an afl for scanning MACD Line crossing Zero Line | AmiBroker | 0 | |
| F | MACD | Technical Analysis | 2 | |
| M | MACD + RSI Strategy for finding uptrends | Technical Analysis | 4 | |
| T | Best MACD / range bar settings | Day Trading | 0 | |
| P | MACD crossover AFL to send an email ALERT RT not working | AmiBroker | 0 |