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Lim Hoo Chon
137
Lim Hoo Chon 2016.08.30 08:25 

Hello,

 

Can someone please explain how to use macd indicator?

Thanks 

Sergey Golubev
Moderator
93673
Sergey Golubev 2016.08.30 11:53  

Forum on trading, automated trading systems and testing trading strategies

Indicators: MACD Histogram, multi-color

Sergey Golubev, 2014.06.19 12:01

Moving Average Convergence Divergence (MACD)

MACD stands for Moving Average Convergence Divergence and was first developed by Gerald Appel in the late 1970s. It is an Absolute Price Oscillator (APO) and can be used in an attempt to identify changes in market direction, strength and momentum.

It calculates the convergence and divergence between a ‘fast’ and a ‘slow’ Exponential Moving Average (EMA) known as the MACD Line. A signal EMA is then plotted over the MACD Line to show buy/sell opportunities. Appel specified the MA lengths as the following percentages:
  • Slow EMA = 7.5% (25.67 period EMA)
  • Fast EMA = 15% (12.33 period EMA)
  • Signal EMA = 20% (9 period EMA)
Usually however these are rounded to EMAs of 26, 12 and 9 respectively. Many charting packages will also plot the difference between the Signal Line and MACD Line as a Histogram.

One of the biggest challenges when dealing with financial data is noise or erratic movements that cause false signals. By smoothing data out you can reduce the number of false signals. But this comes at a cost, and causes an increase in the lag of your signals. The genius of the MACD is that it begins by smoothing data (thus causing lag) and then speeds up the signals from the smoothed data. This combination helps to reduce false signals while minimising the lag.

By comparing EMAs of different lengths the MACD can help to identify subtle changes in the trend and momentum of a security. It is a great visual representation of the acceleration or rate of change in a trend.


How to Calculate a MACD

MACD Formula:

  • MACD Line = EMA,12 – EMA,26
  • Signal Line = EMA[MACD,9]
  • MACD Histogram = MACD – Signal Line
  • Histogram Trigger = EMA[MACD Histo,5]
Obviously you can change the parameters to any value of your choice.

MACD Excel File

We have put together an Excel Spreadsheet that will automatically adjust to the MACD settings you desire. Find it at the following link near the bottom of the page under Downloads – Technical Indicators: Moving Average Convergence Divergence (MACD)

Test Results

Is the MACD an effective indicator? We are putting it into the ring for the Technical Indicator Fight for Supremacy. It will be tested through 300 years of data across 16 global markets to discover which settings produce the best results and how it performs compared to other indicators:
  1. Moving Average Crossovers – Completed - Golden Cross – Which is the best?
  2. Moving Average Convergence Divergence (MACD) – Completed – Results
  3. ZeroLag MACD (ZL-MACD)
  4. MACD Z Score (MAC-Z)

Sergey Golubev
Moderator
93673
Sergey Golubev 2016.08.30 11:55  

Forum on trading, automated trading systems and testing trading strategies

Indicators: MACD Divergence

Sergey Golubev, 2014.01.28 07:59

What is the MACD Indicator? How do I use it? (based on dailyforex article)

One of the most common technical indicators that is used by day traders in the financial markets can be seen in the Moving Average Convergence Divergence -- more commonly referred to as the MACD. But one mistake that many new traders make is that they will simply start using this indicator without really understanding how it functions or makes its calculations. This can lead to costly mistakes that should have been completely avoidable. So, it makes sense to study the logic and calculations behind the MACD (and all other indicators) in order to more accurately configure your day trading positions and generate gains on a consistent basis.




The Moving Average Convergence Divergence (MACD) Defined

Anyone with any experience in the forex markets and in technical analysis strategies has likely heard a great deal about the Moving Average Convergence Divergence (MACD). But what exactly does the MACD tell us -- and how is it calculated? Without an understanding of these areas, it can be difficult to see trading signals as they emerge. Here, will deconstruct the MACD indicator and explain how and why it is commonly used.

“In its most basic form,” said Haris Constantinou, markets analyst, “the MACD is a momentum indicator that is designed to follow existing trends and find new ones.” The MACD does this by showing the differences and relationships between a two-level combination of moving averages and price activity itself.

MACD Calculations

To determine and calculate the MACD, we must subtract a 26 period Exponential Moving Average (EMA) from a 12 period EMA. Then, a 9 period EMA of the MACD is plotted, and this becomes the Signal Line for the indicator. The Signal Line is plotted over the MACD and this will be used as the trigger reading for trading signals (both buy signals and sell signals). These elements form the basis of the MACD construction, and it is important to have a strong understanding of these elements if you plan on using the indicator in your daily trading.

Three Common Approaches to the MACD

Now that we understand the basics of how the MACD is calculated, it is a good idea to look at some of the common ways that the MACD is viewed by traders so that we can get a sense of how exactly the indicator is used to identify trading opportunities. There are a few different ways the indicator can be interpreted, and the three of the most common methods proven to be the most effective for traders include

  • Crossovers,
  • Divergences,
  • and in identifying Overbought / Oversold conditions
Since the indicator has become a major part of the technical trading community, it is a good idea to look at some of these approaches in greater depth. But before you can do this, it is essential you understand the basics. Failure to do this is what leads to a large number of losses for many traders that are just getting started.

Sergey Golubev
Moderator
93673
Sergey Golubev 2016.08.30 11:58  

Technical Analysis Indicator MACD part one

Most technical analysis indicators are lagging. Let show you how to use MACD properly and its Leading indicator values.


Sergey Golubev
Moderator
93673
Sergey Golubev 2016.08.30 12:00  
Technical Analysis Indicator MACD part two

Part two of the three part series on MACD


Sergey Golubev
Moderator
93673
Sergey Golubev 2016.08.30 12:02  

Technical Analysis Indicator MACD part three

The final wrap up in the three part series on MACD


Sergey Golubev
Moderator
93673
Sergey Golubev 2016.08.30 12:06  

Using MACD to Determine Buy and Sell Points


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