How I use the MACD as a way to identify trend reversals

[Golden Retriever Trading]

Just a couple of caveats.

1) This will generate more false signals. Thus, it is imperative you use other indicators in conjunction with MACD.

2) It is DELAYED, thus you have to look at the smaller time frames all the time. If you can do this, it is pretty reliable.

 

[bmwhendrix]

Wow! Please show us your trades where this works.

 

[Handle123]

I have never thought MACD to reliable at all on bar by bar basis, matter of fact I require it to be slow to give less indications for possible Major tops/bottoms. I use Monthly only to long for zones of nine years, weekly I am looking for divergences between MACD/RSI, especially if RSI pegs out beyond 70/30s, I will take add-ons off weekly but never initial entries. Dailies show possible initial trades and where to hedge profits, also add on to existing positions, and I use two minute charts to refine all entries, looking for more divergences of price and volume. Often times getting out of Debit spreads hedging the open profits futures position in handful of days to two weeks. Will buy the first OTM and sell few strikes away with few weeks duration

As far as "Trend Changes", using price is best for me, looking for a "Thrust Bar" beyond the 18 moving ave. I have been much more of doing credit spreads as market is trending one direction, trying to add some as it takes months-years for completion of the position for me.

You sure have a busy chart with all those moving averages, I can't turn off the 4/9 ma on this chart, I just use the 18ma, but really don't need that as I am just waiting for that Thrust Bar for trend, my system looks for extremes, always fading the majority, but need to know trend as to when to put on Debit and Credit spreads. I am pretty much waiting for "Bait" to say when trend is for them and go the other way.

 

[Scataphagos]

MACD is a 2nd derivative of price. Didn't care for it from the first moment I heard of it and how it "works".

 

[Xela]

This will generate more false signals. Thus, it is imperative you use other indicators in conjunction with MACD.

You state this almost as if you believe it's "factual".

It's not.

It's an interpretation, and an opinion.

The first sentence is undeniably true (as anything will give some false "signals"). It's the second part that's the problem.

You might just as well say "Thus it's imperative that you use something different, or better, or abandon indicators and use price action and the non-indicator components of technical analysis" (as so many successful traders do).

The whole idea that if an indicator isn't reliable enough for you, the remedy for that failing is to try to improve on it by adding other indicators is a pernicious, flawed and ill-advised one. (If you don't agree with that, it's probably because I've just done exactly what you've been doing: stating my opinion as if it were somehow "factual").

 

[wrbtrader]

Just a couple of caveats.

1) This will generate more false signals. Thus, it is imperative you use other indicators in conjunction with MACD.

2) It is DELAYED, thus you have to look at the smaller time frames all the time. If you can do this, it is pretty reliable...

GRT,

This is a little off topic but in your other Youtube videos you mention the use of news events impact on your bias. In fact, in one particular video you talked about the FOMC announcement which resulted in you staying on the sidelines for that particular day.

How important is news in your trading ? Thus, can you trade just as well without an news to help you with your "market context" for the trading day ?

Sometimes when we as traders talk about TA...many readers may think in error that nothing else is being used with the TA.

Also, do you trade the Japanese markets or do you only trade the U.S. stock markets ?

Lastly, via a prior conversation with you in your other thread in the psychology section, I highly recommend learning as much as you can about behavior finance, psychology of decision making because its a growing area on wall street and we as retail traders need to pay more attention to such because our minds are not wired to make profitable decisions.

Behavior finance is something I've been discussing for many years know that I strongly believe all retail traders should learn about considering we are the lone wolf types and we don't have access to resources that the typical institutional trader has.

 

[Stockmarketmap]

You can see the various displays of technical indicators within a timeline from 2004 - 2009 from one of the most popular financial blogs https://docs.google.com/document/d/1w63xKeR9ADE52a7PPwSjRILsxLVkanJsYL_Bz7BPb0k/edit?usp=sharing . One can put up a myriad of information without any accountability what so ever and believe that they are an authority on "quantitative" methods ( and later create a money management firm !! ).

Woody Allen once said "there are those who teach, and those who teach PE". Same with the financial industry - there are those conduct quality quantitative research and there are those who manage money ....

 

[Golden Retriever Trading]

Wow! Please show us your trades where this works.

Sure, I'd be happy to.

GRT,

This is a little off topic but in your other Youtube videos you mention the use of news events impact on your bias. In fact, in one particular video you talked about the FOMC announcement which resulted in you staying on the sidelines for that particular day.

How important is news in your trading ? Thus, can you trade just as well without an news to help you with your "market context" for the trading day ?

Sometimes when we as traders talk about TA...many readers may think in error that nothing else is being used with the TA.

Also, do you trade the Japanese markets or do you only trade the U.S. stock markets ?

Lastly, via a prior conversation with you in your other thread in the psychology section, I highly recommend learning as much as you can about behavior finance, psychology of decision making because its a growing area on wall street and we as retail traders need to pay more attention to such because our minds are not wired to make profitable decisions.

Behavior finance is something I've been discussing for many years know that I strongly believe all retail traders should learn about considering we are the lone wolf types and we don't have access to resources that the typical institutional trader has.

I normally do not use the news, but IF I do, I will use it as a contrarian indicator. Much like how the attacks in Belgium today is sinking travel companies and Europe right now. Since RIG is a European company, this might be one of the reasons why RIG is sinking. Of course it isn't 100% news driven, but it might have a partial impact nonetheless and could be trading at a short term discount.

I am actually half Japanese and lived in Japan for most of my life, so I am quite interested in how the Japanese market is performing. I have a long term position with one company (NEC - ticker 6701).

 

[volpri]

Most, probally around 70% or more, reversals fail. It's not that easy to reverse the inertia of the markets that are in a trend. It is very important to observe if the reversal bar shows alot of strenght. Next, pay attention to the test after the reversal as the first pull back from the reversal goes to test the extreme of the trend. What is stronger the reversal bar(s)or the p.b.? This gives some good indication as to whether the reversal continues or fails and the original trend continues thus causing the reversal to be a simply a flag in a p.b. of the orginal trend. In short, bullish and bearish pressure must be taken into account in determining if a reversal is likely to succeed or more likely to fail. Nevertheless, when they do succeed they are some of the best reward/risk ratio trades.