Understanding MACD

Quote from bstay:

what are the newer tools if you could suggest a few? besides the regular MACD, RSI, Williams%R, ATR, ..... all those old stuff invented by George Lane, J Welles Wilder, Gerald Appel?

thanks.
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First, let me say that what I use may not be what you want to use but I will lay out my environment.

I trade futures primarily because I can make more profit per margin dollar than stocks but what I use works for stocks as well. I also think it is far more safer trading in a general market environment than a stock specific environment.

I use MultiCharts as a charting platform. Ninja Trader or Trade Navigator are acceptable as well. I use MultiCharts simply because I am used to it, it offers a few features I like and I'm used to it. :D

I use Constant Volume Bar charts exclusively. I use them because they are the only charts that depict natural cyclic (support/resistance) oscillations and they aren't affected by the idiosyncrasies of spikes due to time released news reports. They also do not need a volume indicator overlaid on them in order to interpret how volume effects that chart.

Price is perfect so a Constant Volume Bar chart is as perfect of a chart as you can achieve . . . today. Why? Because it is a natural depiction of the price and volume (married into a single bar or candlestick) without the need to interpret anything. This is where perfection stops.

This is where each of use SHOULD then add a way to confirm what we are seeing on those charts. I personally use a single Ergodic indicator to confirm what the price portion of the chart is showing me. I've learned to trust this layout because of many many hours of screen time and no chart idiosyncrasies. What I see is what I get . . . period!

I've attached a chart of today's trading up till about 12:33 pm EDT when I exited both positions. Not everyday is this profitable but please, how many days like this a month do you need. Consistent profitability and solid money management will make a trader one happy person if their trades are grounded on their own personal validation of what they use. I am an avid believer though that if you are going to use charts, stick with what's perfect first and foremost.
 

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Standard MACD approach is lagging and very slow for typical entries in a fast moving market. If you trade stocks it may not be so bad but trading futures like the ES its another story. If you want to see one way how lag has been substantially reduced from the MACD google "zero lag macd group reversals."
 

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Quote from gqguy2003:

Standard MACD approach is lagging and very slow for typical entries in a fast moving market. If you trade stocks it may not be so bad but trading futures like the ES its another story. If you want to see one way how lag has been substantially reduced from the MACD google "zero lag macd group reversals."
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Agree. While having a macd or anyother indicator can be a good tool to help confirm a trade, many times you will find that you are getting a late entry compared to someone trading PA.

Take this chart for example. Most here probably dont trade forks, but its a form of pa trading. My entry would have been the first orange dot as price bounced off the center line (median line).

The 2nd orange dot represents the entry of a trader using a macd crossover. There is a 4.49 point difference between the guy using pa only and the slower trader using indicators.

If we both were aiming for the same target level, guess who would have the higher % return on his trade?...the price action only trader.

Not only would they have a higher return, but also lower risk as well, assuming we used the same stop loss.
 

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Quote from Arcanine:

I'd like to understand better the mechanism behind the MACD. I know what a MACD is and how it is calculated, but I want to understand how it is useful in trading, e.g. what does it say about the market. How does plotting the difference of two moving averages as an oscillator give me insight to the structure of the market?

There must be a reason for its continued use by many traders (including successful ones).

Please note: I'm not looking for anyone's opinion about the usefulness of the MACD or of technical indicators in general--that's a different topic. I just want some objective, logical, mathematical discussion about this indicator. Also, I'm not looking for anyone to discuss their personal "setups," unless you feel inclined to do so.

Thanks
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You're on your first date with a stunner. You want this to be a one-call close.

During dinner/wine she reaches over and touches you gently on the arm and smiles = the 12/26 has crossed the 9. You're odds are now +35% from just a mere 10% at the start of dinner.

Later over Amaretto, she looks and holds your gaze for a second longer than usual and ends it with a smile = the 12/26 has crossed the 0-line. Your odds are now +65%.

She crosses her legs and accidentally kicks you gently, apologizes profusely with her hand on you upper thigh = 12/26 after crossing 0-line dipped down to retest the 0-line, then shoots north like a rocket. Your odds are now 95%.

If you don't mount her right there I'll shoot you myself. :)

Later, in bed, the thickest = widest distance between the 12/26 and 9 is when you're in the biggest thrusting phase of intercourse with her hands on your chest as you lunge and lunge. This is when you pour on the coal and go totally prehistoric with a cacophony of sub-zero frequency guttural sounds. This will drive her quite mad. :)

Much later, as both lay satiated, sipping coffee in bed or at the kitchen table, all lovey-dovey = 12/26 has topped + a lower high and is crossing the 9 downward with a histogram downside bar hard-on

That's when you make preparations to depart - gently. You should be gone at around about the time of the 0-line downside cross.

That would then be a magnificent fuck with a "clean getaway"

Such is the power of the Macd but asking this question at ET is akin to flashing thousands of $ openly and asking at

www. come-to-papa.com :) :D
 
Quote from deadbroke:

You're on your first date with a stunner. You want this to be a one-call close.

During dinner/wine she reaches over and touches you gently on the arm and smiles = the 12/26 has crossed the 9. You're odds are now +35% from just a mere 10% at the start of dinner.

Later over Amaretto, she looks and holds your gaze for a second longer than usual and ends it with a smile = the 12/26 has crossed the 0-line. Your odds are now +65%.

She crosses her legs and accidentally kicks you gently, apologizes profusely with her hand on you upper thigh = 12/26 after crossing 0-line dipped down to retest the 0-line, then shoots north like a rocket. Your odds are now 95%.

If you don't mount her right there I'll shoot you myself. :)

Later, in bed, the thickest = widest distance between the 12/26 and 9 is when you're in the biggest thrusting phase of intercourse with her hands on your chest as you lunge and lunge. This is when you pour on the coal and go totally prehistoric with a cacophony of sub-zero frequency guttural sounds. This will drive her quite mad. :)

Much later, as both lay satiated, sipping coffee in bed or at the kitchen table, all lovey-dovey = 12/26 has topped + a lower high and is crossing the 9 downward with a histogram downside bar hard-on

That's when you make preparations to depart - gently. You should be gone at around about the time of the 0-line downside cross.

That would then be a magnificent fuck with a "clean getaway"
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I LOLed pretty hard with this. Thanks for making my day. :)

Also, thanks to those who provided links to interesting MACD posts/discussions. I was looking for information because I have some thoughts on improving my trading using the MACD (and not just changing the parameters, although that's part of it).

@konviction: You do make a good point. In practice (on a sim), the trades that worked out best for me were always ones that I could anticipate based on price movements. I've never used pitchforks, though I am a fan of trend channels. Rather than strictly using MACD for entry signals, I see perhaps the ability to help anticipate turning points, be they cyclical swings or more dramatic reversals, so that I can trade with the trend.
 
Quote from Arcanine:

Out of curiosity, does it mean anything if my MACD forms a head and shoulders pattern? :D
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That is like asking someone what they see in a Rorschach Test.
 
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