Macd
- Thread starter sharp10
- Start date
MACD helps me spot divergences and reversals on long price swings. However I do not use the deault numbers for MACD. I match them with the moving averages I am actually using on the charts.
For example this morning, the MACD showed higher lows in the pre-market leading into the open of the YM Dow minis and I went long looking for MACD confirmation among other thigns. Shortly thereafter MACD broke through the zero line and kept running keeping me in the trade.
I would not rely on it all alone, but in conjunction with moving averages it can alert to possible entries/exits.
For example this morning, the MACD showed higher lows in the pre-market leading into the open of the YM Dow minis and I went long looking for MACD confirmation among other thigns. Shortly thereafter MACD broke through the zero line and kept running keeping me in the trade.
I would not rely on it all alone, but in conjunction with moving averages it can alert to possible entries/exits.
THis is just my opinion and something that I find works. If I am using a 20 and 40 day moving average in the chart I set the MACD to 20/40. It gives better confirmation/divergence signals and matches more what is happening in the chart I am looking at.
Sometimes it does not match up perfectly so I tweak it. For example, on one Tick chart where I have 25/50 period MAs, the 25/50 MACD was late on certain signals and not matching up on back looks. So I adjusted it to 20/40 and it worked better (trial and error here of course, keep tweaking until it matches better).
Sometimes it does not match up perfectly so I tweak it. For example, on one Tick chart where I have 25/50 period MAs, the 25/50 MACD was late on certain signals and not matching up on back looks. So I adjusted it to 20/40 and it worked better (trial and error here of course, keep tweaking until it matches better).
MACD measures the difference (the spread) between the two values in the MACD. In your case, the spread between the 12ma and 26ma.
As the difference between the two diminishes (gets smaller), the MACD will migrate towards the Zero line. When the two are equal, the exact value is Zero. When they cross, you get a Zero line cross.
Thus, as MACD bends lower towards zero, it is telling you that the spread between your two MAs is getting ready to cross down.
Similarly, as MACD moves upwards towards zero, your two MAs are getting ready to get a "positive" cross.
This works for any MA combo, so optioncoaches approach of using similar MA pairs on both his price and his MA helps to "align" the signals he is using.
Divergences, ie, price continues to rise while the MACD is bending lower, is telling you that the short MA is still above the long MA (ie, MACD is above zero), BUT that the spread between them is getting smaller, ie, they are getting closer to am MA cross-over.
Anyone who *really* studies MAs knows that a cross isn't always a sell (or buy), but rather an intersection of two cycles. Sometimes the cycles are so strong and you might get a "skim" rather than a cross, which is in fact a rather strong continuation signal. The MACD will show this as a skim of the Zero line.
There's more to this, but perhaps these thoughts will help you observe MACD in a different light.
best, amg
<a href="http://versaluna.com/2006/amg36.png" target="_blank"><img src="http://versaluna.com/2006/amg36.png" width="100"></a>