MACD - Moving Average Convergence Divergence

Traderji

Super Moderator
#1
MACD - Moving Average Convergence Divergence

The Moving Average Convergence Divergence (MACD) was invented by Gerald Appel sometime in the sixties.

The MACD ("Moving Average Convergence Divergence") is a trend following momentum indicator that shows the relationship between two moving averages of prices.

It is one of the simplest and most reliable indicators available. MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics. These lagging indicators are turned into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits. MACD is a centered oscillator.

The MACD is the difference between a 26-day and 12-day exponential moving average.

mov( close, 12, E) - mov( close, 26, E)

A 9-day exponential moving average, called the "signal" (or "trigger") line is the 9 day EMA of the difference between the 26 and 12 period EMA and is plotted on top of the MACD to show buy/sell opportunities.

mov( (mov( close, 12, E) - mov( close, 26, E)), 9, E)

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.
 
#3
I use MACD 5,25,5...

Also check out these links:
http://www.nqoos.com/efuturevision1.htm
http://www.nqoos.com/efuturevision2.htm

Cheers,
--
Linuxtroll
 

sh50

Active Member
#4
I must have missed this. It is good indeed though it would have been better if overbght-oversold, divergence and crossovers had also been explained thru the MACD histogram.
I remember requesting Traderji in the stochastics post to make similar posts on RSI and ROC since they are the only two major indicators left. Thanks.
 
#8
Dear Traderji,

A very good and informative writeup. Thanx

Can you just explain us how to calculate how oversold or overbought a security is. And also the significance of RSI and ROC as already has been pointed out.Also currently i am using FCharts. Can i get these charts in this software by putting some formulae or so.

rgds
Neeraj
 

Similar threads

Broker Special Offers

Intraday Higher Leverage

Save up to 90% in brokerage and get higher leverage for intraday trades.

Name:Phone:
Email:City:
State:
Are you a day trader?