MACD - Moving Average Convergence/Divergence PDF

MACD - MOVING AVERAGE CONVERGENCE/DIVERGENCE Ing. Radovan Dráb, PhD. Ing. Viliam Vajda, PhD.  MACD MACD is Moving Average Convergence Divergence. Indicator was developed by G. Appel in in the late 1970s. MACD Indicator is very strong „tool“ of the tech...

MACD - MOVING AVERAGE CONVERGENCE/DIVERGENCE Ing. Radovan Dráb, PhD. Ing. Viliam Vajda, PhD.  MACD MACD is Moving Average Convergence Divergence. Indicator was developed by G. Appel in in the late 1970s. MACD Indicator is very strong „tool“ of the technical analysis especially when trader is able to identify divergence. It is also a trend indicator.  Calculation of MACD Standard parameters: 3 exponential moving averages MACD = EMA (12) – EMA (26) + MACD= Short EMA – Long EMA Signal= EMA (9) from MACD + MACD- HISTOGRAM: signal line = Short EMA from MACD Difference between MACD and MACD should be connected and Signal line : linked with phases (cycles) of the Positive difference = Positive market value Short EMA =1/4 of the length of Negative difference = Negative dominant cycle of the asset/stock value Long EMA = 1/2 of the length of Zero difference = Zero line dominant cycle of the asset/stock Standard calculation: Third EMA - signal line is not MACD- EMA(9) from MACD connected with stock cycle. MACD EMA (12) EMA (26) EMA (9) MACD MACD-Histogram  MACD - usage 1. Buying and selling signals: 3. Justification of Up or Down Crossovers of MACD with a signal trend line Investors and traders watch for both MACD crosses signal line upward, (MACD and Signal line) with in  Buying signal. relation of zero line : Both lines are above zero line: MACD crosses signal line Uptrend downward, Both lines are below zero line:  Selling signal. Downtrend 2. Overbought and Oversold 4. Weakening trend: market: Investors and traders watch for difference between Investors and traders watch for MACD movement and price movement : Price creates lower lows and MACD "dramatic" movement of MACD. creates higher lows MACD raises dramatically, Weakening downtrend  Future overbought market. Price creates higher highs and MACD MACD falls dramatically, creates lower highs  Future oversold market. Weakening uptrend. Crossovers with moving averages Positive (bullish) Negative (Bearish) Crossovers with centerline (Zero) line Negative (Bearish) Positive (bullish) Divergence Positive (Bullish) Negative (Bearish)  Advantages of Disadvantages of MACD MACD  Movement and trend aspect × Lagging indicator (the answer for combined in one indicator. solving this problem is usage of MACD Histogram)  MACD, as movement indicator, is able to show stock price × MACD is not useful for overbought movements. and oversold lines identification.  MACD differences should be the key factor for prediction of × MACD is calculated as a total the trend change. difference between 2 moving averages (not in%).  MACD should be used without (This fact complicates comparison of time frame limitations. MACD levels in the long time period – especially when the price of the stock is  Any combination of moving in the exponential movement). averages can be used. MACD Histogram MACD –histogram: Slant divergence MACD –histogram: Peak- Trough Divergence  MACD-Histogram MACD-Histogram Advantages Disadvantages  Ability to predict MACD signals × As a second derivate of the price (Divergences should be detected in indicator if far away from the actual MACD Histogram before crossovers) price movement. (There is a chance for fake signals)  MACD-Histogram MACD should be used without time frame × Histogram was developed for MACD limitation. signals prediction – there is a chance (By using of weekly chart we can for early entering of the position. determine/detect basic - primary trend. Daily chart we can use for timing of the entering position) × Tiny and shallow divergences should produce fake signals.(Its necessary to watch for longer divergences with two or more peaks that could be easily identified.) TNX 4 ATT