MACD Convergence Divergence
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Re: Traderji --please explain Convergence
When price and momentum indicators trend in the same direction it is called convergence.
When price and momentum indicators do not trend in the same direction it gives perception that the velocity of price has changed and may warn of an impending reversal. This is called divergence.
The "MACD" is a trend following momentum indicator that shows the relationship between two moving averages of prices. To Calculate the MACD subtract the 26-day EMA from a 12-day EMA. A 9-day dotted EMA of the MACD called the signal line is then plotted on top of the MACD.
There are 3 common methods to interpret the MACD:
1. Crossovers - When the MACD falls below the signal line it is a signal to sell. Vice versa when the MACD rises above the signal line.
2. Divergence - When the security diverges from the MACD it signals the end of the current trend.
3. Overbought/Oversold - When the MACD rises dramatically (shorter moving average pulling away from longer term moving average) it is a signal the security is overbought and will soon return to normal levels.
When price and momentum indicators trend in the same direction it is called convergence.
When price and momentum indicators do not trend in the same direction it gives perception that the velocity of price has changed and may warn of an impending reversal. This is called divergence.
The "MACD" is a trend following momentum indicator that shows the relationship between two moving averages of prices. To Calculate the MACD subtract the 26-day EMA from a 12-day EMA. A 9-day dotted EMA of the MACD called the signal line is then plotted on top of the MACD.
There are 3 common methods to interpret the MACD:
1. Crossovers - When the MACD falls below the signal line it is a signal to sell. Vice versa when the MACD rises above the signal line.
2. Divergence - When the security diverges from the MACD it signals the end of the current trend.
3. Overbought/Oversold - When the MACD rises dramatically (shorter moving average pulling away from longer term moving average) it is a signal the security is overbought and will soon return to normal levels.
Please explain DIVERGENCES ..thanks.
Let's talk in case of MACD-Histogram
Divergences mean price trends and MACD-histogram point at different directions. Can someone explain how it occurs? When price is making higher highs and higher lows, doesn't the fast line increases ? If the fast line increases, doesn't the MACD-histogram increase too since it is the fast/MACD line minus the slow/signal line? How someone explain how can they go aganist each other?
If a chart can be provided, that would be amazingly fantastic and fantastically amazing. Thank you.
Let's talk in case of MACD-Histogram
Divergences mean price trends and MACD-histogram point at different directions. Can someone explain how it occurs? When price is making higher highs and higher lows, doesn't the fast line increases ? If the fast line increases, doesn't the MACD-histogram increase too since it is the fast/MACD line minus the slow/signal line? How someone explain how can they go aganist each other?
If a chart can be provided, that would be amazingly fantastic and fantastically amazing. Thank you.
Re: Please explain DIVERGENCES ..thanks.
Divergence is defined in the dictionary this way: "to depart from the norm: to deviate". In the trading world it simply means a situation when a market and an accompanying indicator (that usually trend together) begin to go in opposite directions. This market condition will often precede a change in market trend. In and of itself a "divergence" in the market is a condition, but not a definite market signal.
A bullish divergence occurs when prices fall to a new low while an oscillator fails to reach a new low. This situation demonstrates that bears are losing power, and that bulls are ready to control the market again--often a bullish divergence marks the end of a downtrend.
Bearish divergences signify uptrends, when prices rally to a new high while the oscillator refuses to reach a new peak. In this situation, bulls are losing their grip on the market, prices are rising only as a result of inertia, and the bears are ready to take control again.
Please see attached chart for examples of BULLISH & BEARISH DIVERGENCE!
Divergence is defined in the dictionary this way: "to depart from the norm: to deviate". In the trading world it simply means a situation when a market and an accompanying indicator (that usually trend together) begin to go in opposite directions. This market condition will often precede a change in market trend. In and of itself a "divergence" in the market is a condition, but not a definite market signal.
A bullish divergence occurs when prices fall to a new low while an oscillator fails to reach a new low. This situation demonstrates that bears are losing power, and that bulls are ready to control the market again--often a bullish divergence marks the end of a downtrend.
Bearish divergences signify uptrends, when prices rally to a new high while the oscillator refuses to reach a new peak. In this situation, bulls are losing their grip on the market, prices are rising only as a result of inertia, and the bears are ready to take control again.
Please see attached chart for examples of BULLISH & BEARISH DIVERGENCE!
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Hi
I am new to TA. Was reading this article and was analysing the chart of SATYAMCOMP in the weekly mode. I have certian Ques/Clarifications.
I would like to know that what is the significance of the divergences in the weekly chart as compared to the ones in the Daily chart. I am specifically talking about Satyam after January 2003 in the Weekly chart.
If somebody can please clarify after looking at the charts in their own softwares as I cannot upload files as of now.
This Scrip made a top in Jan 2004 of Rs.380 and the MACD also toped. then it came down to 280-290 levels in May 2004 and the MACD also came down but this low of the MACD was higher than the low made in FEB 2003. Now the sxcrip has again rallied up from the low of 280-290 to a high of 440-450 levels in Dec 2004, but on the contrary the MACD has made a lower high. (all this I am talking in the weekly charts) How should I interpret this. Please shed some light on this topic.
I am new to TA. Was reading this article and was analysing the chart of SATYAMCOMP in the weekly mode. I have certian Ques/Clarifications.
I would like to know that what is the significance of the divergences in the weekly chart as compared to the ones in the Daily chart. I am specifically talking about Satyam after January 2003 in the Weekly chart.
If somebody can please clarify after looking at the charts in their own softwares as I cannot upload files as of now.
This Scrip made a top in Jan 2004 of Rs.380 and the MACD also toped. then it came down to 280-290 levels in May 2004 and the MACD also came down but this low of the MACD was higher than the low made in FEB 2003. Now the sxcrip has again rallied up from the low of 280-290 to a high of 440-450 levels in Dec 2004, but on the contrary the MACD has made a lower high. (all this I am talking in the weekly charts) How should I interpret this. Please shed some light on this topic.
Hi
Thanks Yes I am reffering to the bearish divergence on the weekly charts. I would like to ask is as Satyam is showing a Bearish Divergence
1. should a trader go short or sell off their holdings in this counter.
2. If yes what sould be the stop loss in this case and how to arrive at the stop loss in case of sale.
Please advise
Thanks Yes I am reffering to the bearish divergence on the weekly charts. I would like to ask is as Satyam is showing a Bearish Divergence
1. should a trader go short or sell off their holdings in this counter.
2. If yes what sould be the stop loss in this case and how to arrive at the stop loss in case of sale.
Please advise
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