MACD (Moving Average Convergence Divergence)

- MACD is used to identify trends and reversal.

- Equilibrium line: when 2 MA cross below equilibrium line = shorter EMA value less than longer EMA
= Bearish signal
- MACD line = difference between EMA12 and EMA 26. Responds to price changes quickly (faster line)
- Signal line = EMA9 of the MACD line. Responds to price changes slowly (slower line)
- Buy signal = faster line crosses slower line from below. Sell signal = faster line crosses slower line
from above. This generates lot of signal (do not trade all, many risk/whipsaws), use other indicators
like trendline drawn on MACD line can reduce/filter number of trades 9 to 3.
- Narrow trading range gives many false signals
- MACD overvought-oversold area = plus-minus 2.50 or 1.20. When differential line crosses into these
area, a signal is generated for buy/sell.
- MACD is Best used in long term analysis tool
- Trendline violation/break that confirm with MACD crossover = reliable. Sometime delaying
crossover can be frustating.
- Monthly (longer) MACD can be used to confirm weekly (shorter) pattern
- Short term signal can be traded in direction of longer term MACD (to avoid whipsaws)

- MACD Histogram (Oscilators) is used to show power of bull and bear (growing stronger or weaker).
- MACD Histogram = MACD Line – Signal Line
- Buy signal = MACD Histogram start slope up from below center line (bear exhausted). Sell signal =
MACD Histogram start slope down from above center line (bull exhausted). This generates lot of
signal (do not trade all, many risk/whipsaws), use MACD Histogram in larger Timeframe (weekly) to
determine the bull or bear and look for trade in Daily (Triple Screen System).