Experiments in Technical Analysis

Hi Amit,

I am not able to open your attachment with .filter extention. can you please tell me with which program i can open the .filter extention files.

Regards,

Roshan Prasad.

Hi pandya

Appreciate your kind words and it is nice to know that this thread I has been useful to you..

Please note my comments on your queries..

Correct, pandya. It is only natural that a bearish divergence occurs when the stock is in a uptrend which would that MACD is positive and vice versa.

Definitely, you should look for divergence at various time frames. The divergence in a particular time frame would cause a reaction whose magnitude is related to those time frames. For example if there a bullish divergence is in daily only the reaction it causes would a bullish moves measuring days. But the same in a weekly chart would have reaction measuring in weeks. It would then mean that Divergence in weekly charts become more important than those on daily which is more important than those on hourly charts.

Sorry I missed that divergence on the Arvindmills. Many times you will see a divergence on the Histograms and not on the MACD itself. This makes Histograms more useful.


Unfortunately it is very difficult to have rules for Divergences. There are some codes for detecting divergence of MACD on the net, which I did not find very useful. I was trying out some code but still not very happy with the result. Eyeballing the charts is the best way. Keep studying the charts and soon divergences and patterns start jumping out …

Regards

Karthik

Dear Karthik

Thanks a lot for taking the time to answer my queries.
I really do appreciate it.

Thanks and regards
Pandya

Hi! Karthik,

Hope all is well at your end.

Good to see this thread still going strong.

Cheers and have a good weekend.

Warm regards,
Amit

Hi Amit

It is good to see you back in the forum. Hope you have fully recovered from the accident injuries. Nice to have you back wih us.

warm regards

Karthik

hi,
Can someone give me metastock formula for chande's RAVI. Or guide to the link.I read about it in this thread but could not find the formula.

spiderman

Dear Mr.Karthik,
I am new to this Thread, and really happy to see such meaningful discussions.
My best wishes for your contribution to this community.

I am new to TA, and trying with Amibroker. I need some clarification on nifty intraday studies.

1. What combination of moving average can be used for MACD intraday buy sell signals(as u said 8,17,9 for Buy and 12,26,9 for Sell), and the time period for intraday studies (like 5min,10min,15min).

2. If we use EMA crossover for buy/sell suggest the range for intraday.

3. What are the other factors to be watched along with MACD, RSI & EMA crossover.

4. Give some suggession abt ADX settings for intraday signals.

Kindly give me your valuable advice to set the chart study for both intraday and short term(for nifty).

Thanks in advance.
Raj

Dear friends,

Karthik has given a lucid and easy to understand description of MACD and its use as a trading system. He has given the rules for trading and reinforced our understanding with very informative charts and comments. As he is very busy he probably could not cover some more aspects of MACD for want of time. Even then whatever he has described is quite sufficient for understanding and experimenting with MACD.

I would like to continue this series with a couple of posts (may be three or four) describing the additional strength that MACD can give to an existing trading system to make it more robust. I will also discuss about the "Zero-Lag MACD". My contribution will not be as lengthy as Karthik's because I do not have as much experience as Karthik has. But I will write about whatever little I know. Karthik and other knowledgeable members can add their comments so that it would be more useful to all of us.

Any charts that I upload will have continuation of Karthik's chart numbers to retain the continuity with his posts.

To start with I will summarize whatever Karthik has posted. Some of the points below may be repetition of what he has posted and some are those which he has not mentioned explicitly. This will maintain the continuity.

MACD and MACD Histogram in a nutshell:

MACD was developed by Gerald Appel.

It depicts both momentum and trend in one indicator. As a trend-following indicator, it will not be wrong for very long. As a momentum indicator, MACD foreshadows the changes in the price.

MACD represents the convergence and divergence of two moving averages.

MACD can be applied to all time frames: intra day, daily, weekly or monthly charts.

The default setting for MACD is the difference between the 12 and 26 period EMA. For weekly charts, shorter periods of moving averages may be appropriate. For volatile stocks, slower moving averages (longer periods) help smooth the data.

A 9-period EMA of the MACD is used as "Signal Line" which is also known as "Trigger Line."

MACD HISTOGRAM:

In 1986, Thomas Aspray developed the MACD Histogram.

The MACD-Histogram represents the difference between MACD and the signal line. This difference is presented as a histogram, making zeroline crossovers and divergences easily identifiable.

Sharp increase in the MACD-Histogram means bullish momentum is becoming stronger. Similarly, sharp declines in the MACD Histogram indicate that bearish momentum is increasing.

MACD-Histogram does not show the absolute value of MACD. It shows the value of MACD relative to its Signal Line. Usually, a divergence in MACD-Histogram is observed before the corresponding move in MACD.

The main signal given by the MACD-Histogram is a divergence before a moving average crossover. In general, there are two types of divergences: the slant divergence and the peak-trough divergence.

A slant divergence is a continuous and relatively smooth move in one direction, either up or down. Slant divergences generally cover a shorter time period.

A peak-trough divergence occurs when two or more peaks (or troughs) develop in one direction to form the divergence. A series of two or more rising troughs (higher lows) form a positive divergence and a series of two or more declining peaks (lower highs) form a negative divergence. Peak-trough divergences usually cover a longer time period than slant divergences. They are also more reliable than the slant divergences.

The longer and sharper the divergence the better the signal will be. Short and shallow divergences can lead to false signals and whipsaws.

The important aspect of the MACD-Histogram is its ability to anticipate MACD signals. Divergences can usually be spotted in the MACD-Histogram before MACD moving average crossovers.

Multiple time-frame MACD charts are useful in validating the inferences. For example, the weekly MACD can be used along with daily MACD. The weekly MACD shows the long-term trend. Then only MACD signals on Daily chart that agree with the long-term trend would be considered valid. Thus if the long term trend is bullish, only negative divergences with bearish zeroline crossovers are considered valid. If the long-term trend is bearish, only positive divergences with bullish zeroline crossovers are considered valid.

Similarly, daily MACD can be used as trend indicator and intra day trades taken with intra day MACD.

One should be careful about small and shallow divergences. These may sometimes lead to good signals, but they are also more prone to create false signals.

In the next post I will write about use of MACD to improve an existing trading set-up.


Regards

-Anant

anant,
Bravo a robust task you have undertaken.

Asish

dear sir, ...........simply fantastic..........best ....great ...excellent...i dont have words to express my view..............thank you very much for sharing the formula......