MACD Moving Average Convergence Divergence

adultvish · #1 29th January 2006, 07:40 PM

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

SRINIPYT · #2 30th January 2006, 06:31 PM

Quote:

Originally Posted by adultvish

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

Hi: Go thro url http://www.worden.com/training/defau...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

yoda · #3 1st February 2006, 04:03 AM

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

TATrader · #4 1st February 2006, 05:47 PM

Thanks SRINIPYT,

A great video for all TA to view.

rajesh.sadhanala · #5 7th February 2006, 09:28 PM

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

tanewbie · #6 8th February 2006, 04:07 PM

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.

tanewbie · #7 8th February 2006, 04:29 PM

attached chart of Garden Silk. An example of negative divergence wrt price and macd.

srisrini · #8 8th February 2006, 04:35 PM

Sir,

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

rajesh.sadhanala · #9 8th February 2006, 09:56 PM

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

rajesh.sadhanala · #10 8th February 2006, 09:57 PM

Quote:

Originally Posted by tanewbie

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.

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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