Indicators. MACD, part 1

MACD

The composite oscillator

Designed by Gerald Appel, the indicator of convergence / divergence of moving averages (MACD) is one of the easiest and most reliable indicators. MACD uses moving averages, which are indicators of delay, and includes some of the specifications for the trend. These indicators become retarded pulse oscillator by subtracting the longer moving average from the shorter moving average. The final schedule for forming a line that fluctuates above and below zero, without any restrictions from above and below. MACD is the central oscillators, it applied the basic rules for the central oscillator.

MACD Formula
The most popular formula for the "standard" MACD is the difference between the 26-day and 12-day exponential moving averages. This form mule used in many popular programs for technical analysis, including SharpCharts, and indicated the majority of books on technical analysis. Appel and others transformed this initial installation to include MACD, that would better fit faster or slower market-based instruments. Using shorter moving averages will provide a faster, more sensitive indicator, while using longer moving averages will produce slower indicator, less prone to rapid spread. For the purposes of this article, will be used in explaining the traditional 12/26 MACD. Later, in a number of indicators, we turn to the use of different moving averages in calculating MACD.

Of the two moving averages that make up the MACD, the 12-day EMA (exponential moving average) is more rapid, a 26-day EMA slower. To form the moving averages of closing prices are used. Usually, the 9-day EMA MACD is constructed separately for use as a pulse line. Byche crossing occurs when MACD moves above its 9-day EMA and Medvezhye crossing occurs when MACD moves below its 9-day EMA. The graph below shows the Merrill Lynch 12-day EMA (thin green line) with a 26-day EMA (thin blue line), applied to the price schedule. MACD is shown in the box below in the form of a thick black line along with his 9-day EMA, depicted a thin blue line. The histogram represents the difference between MACD and its 9-day EMA. The histogram is positive when MACD is above its 9-day EMA and negative when MACD below its 9-day EMA.

What does MACD?
MACD measures the difference between two moving averages. A positive MACD indicates that the 12-day EMA is traded above 26-day EMA. A negative MACD indicates that the 12-day EMA is traded below the 26-day EMA. If MACD is positive and rising, the gap between the 12-day EMA and 26-day EMA is widening. This shows that the degree of change faster moving average is higher than the degree of change over the slow moving average. Positive momentum is increasing and is considered to be bovine indicator. If MACD is negative and declining further, then the negative gap between the faster moving average (green) and the slower moving average (blue) is expanding. Descending momentum is accelerating and it is regarded as a bearish indicator. Crossing the center line of MACD happens when fast moving average crosses the slower moving average.

The graph Merrill Lynch MACD shows a solid black line, and his 9-day EMA thin blue line. Even though moving averages are indicators of delay, it should be noted that MACD moves faster than the moving averages. In this example, with Merrill Lynch, MACD has also provided a few good trading signals.

1. In March and April, MACD turned down before both moving averages and has formed a negative divergence to the price peak.

2. In May and June, MACD began to grow and showed a higher low, while both moving averages continue to show lower minimums.

3. And finally, MACD in October formed a positive divergence, while both moving averages have shown the new minimums.

Bychi signals MACD
MACD gives bychi signals in three main ways:
1. Positive divergence
2. Byche crossing of moving averages
3. Byche crossing the center line

Positive divergence
Positive divergence occurs when MACD begins to rise, and market-based instruments is still in a descending trend and creates a lower minimum. MACD can form as a series of higher minimum and second minimum, which is higher than the previous one. The positive divergence - the least frequent of these three signals, but usually the most reliable and leads to the largest movements.

Byche crossing of moving averages
Byche crossing moving averages occurs when MACD moves above its 9-day EMA, or pulse line. Byche crossing of moving averages is probably the most common sign, but also the least reliable. If he is not used in combination entry for other technical analysis tools, the crossing may lead to a quick turn and the set of false alarms. Intersection of moving averages are sometimes used to confirm a positive divergence. The second or bottom of a higher low positive divergence can be considered valid if it is accompanied by bovine crossing moving averages. Sometimes wisely use the price filter to the crossing of moving averages in order to guarantee the solvency of that. An example of a filter for the purchase price will be the situation when the MACD proryvaetsyavyshe 9-day EMA and remains above it for three days. Purchase tone then begin at the end of the third day.

Byche crossing the center line
Byche crossing the center line occurs when MACD moves above the zero line in the positive territory. This is a clear indication that momentum has changed from negative to positive, or bullish for the Bear. After a positive divergence and bovine crossing moving averages, crossing the center line can act as a confirming signal. Of these three signals, crossing the center line is probably the second occurrence frequency signal.






Using a combination of signals
Even though some traders may use only one of these signals to form signals the purchase or sale, using the combination may provide more reliable signals. In the case of Halliburton All three bull signal, and the action moved a further 20%. The action at the end of February, has formed a lower minimum, while the MACD formed a higher low, thus creating a potential positive divergence. MACD then formed byche crossing, advanced above its 9-day EMA. And finally, MACD traded above zero to form byche crossing the center line. During the bovine crossing the center line, the action is traded at around 321 / 4, and immediately after that went above 40. In August, the share traded above 50.

















In Part 2 will be considered bear signals MACD.

Arthur Hill