What is MACD?
The MACD indicator is a technical trading tool used by traders for years, and most technical traders will have the MACD indicator within at least one of their trading methods.
The full name is Moving Average Convergence / Divergence (MACD) and it is used to identify when stocks or indices have a change in strength, direction, momentum or time of its trend in price. Basically it gives you an excellent early signal that a stock is moving into a buy or sell phase.
This single indicator has been know to be used by traders on its own as a method in stable periods of the market - but more implementation latter.
MACD explained
The MACD indicator represents the difference between a short term moving average and a long term moving average. The short term average is typically 12 days, and the long term average is 26 days with most system.
If you care it was created by Gerald Appel in the 1970's and how only become more popular with time as the reliance and the use of technical trading has becomes more accessible and understood.
How to use MACD
If you want to implement MACD into your trading method the first thing you need to understand is when it tells you to buy and when it tells you to sell. This is really simple, as the MACD indicator crosses above 0 into the positive BUY, and therefore, as the MACD indicator crosses below 0 into the negative SELL. It is as simple as that.
Your now starting to understand why this is so popular and why it is referenced in almost every trading book and is a ready to use indicator in all technical trading software.
But with the all this trading software available to people it is important to find a way to stand out from the crowd and trade better. Remember that the periods with all technical trading software have been developed and recommended over several years of testing for the majority of market conditions, or maybe just selected as random, who really knows what the programmer was thinking. So be aware your only in the current market conditions, be prepared to test and try different MACD average terms as the best period for right now might be 5, 20, or 7, 35.
After all the best traders buy and sell before everyone else to capitalize with maximum profit. As I've always said, you stand on the shoulders of those before you, never stand in their shoes.
How to read MACD?
Now we understand the basics of MACD and when we are in a buy phase or a sell phase. But as you know or will learn that trading is rarely black or white, but more like a constant shades of grey.
If you review the chart above you can see that the MACD indicates a buy signal very early in the up trend, then reversed quickly then moved back into buy on the start of the long trend up. Now look closely because the MACD started to come down before the stock price, this is because the stock started to lose momentum, an early sign that a stock is coming off.
I could write a complete post just interpreting this single chart, so i recommend that you have good look at the MACD chart the behavior of the MACD in relation to the stock price and think about what you would of done as you were presented with each change in the MACD chart.
The MACD indicator is a technical trading tool used by traders for years, and most technical traders will have the MACD indicator within at least one of their trading methods.
The full name is Moving Average Convergence / Divergence (MACD) and it is used to identify when stocks or indices have a change in strength, direction, momentum or time of its trend in price. Basically it gives you an excellent early signal that a stock is moving into a buy or sell phase.
This single indicator has been know to be used by traders on its own as a method in stable periods of the market - but more implementation latter.
MACD explained
The MACD indicator represents the difference between a short term moving average and a long term moving average. The short term average is typically 12 days, and the long term average is 26 days with most system.
If you care it was created by Gerald Appel in the 1970's and how only become more popular with time as the reliance and the use of technical trading has becomes more accessible and understood.
How to use MACD
If you want to implement MACD into your trading method the first thing you need to understand is when it tells you to buy and when it tells you to sell. This is really simple, as the MACD indicator crosses above 0 into the positive BUY, and therefore, as the MACD indicator crosses below 0 into the negative SELL. It is as simple as that.
Your now starting to understand why this is so popular and why it is referenced in almost every trading book and is a ready to use indicator in all technical trading software.
But with the all this trading software available to people it is important to find a way to stand out from the crowd and trade better. Remember that the periods with all technical trading software have been developed and recommended over several years of testing for the majority of market conditions, or maybe just selected as random, who really knows what the programmer was thinking. So be aware your only in the current market conditions, be prepared to test and try different MACD average terms as the best period for right now might be 5, 20, or 7, 35.
After all the best traders buy and sell before everyone else to capitalize with maximum profit. As I've always said, you stand on the shoulders of those before you, never stand in their shoes.
Top - Stock price in candle stick
Middle - Volume
Bottom - MACD
How to read MACD?
Now we understand the basics of MACD and when we are in a buy phase or a sell phase. But as you know or will learn that trading is rarely black or white, but more like a constant shades of grey.
If you review the chart above you can see that the MACD indicates a buy signal very early in the up trend, then reversed quickly then moved back into buy on the start of the long trend up. Now look closely because the MACD started to come down before the stock price, this is because the stock started to lose momentum, an early sign that a stock is coming off.
I could write a complete post just interpreting this single chart, so i recommend that you have good look at the MACD chart the behavior of the MACD in relation to the stock price and think about what you would of done as you were presented with each change in the MACD chart.
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