Moving Average convergence divergence, or MACD, are still used in more than 40 years. Mon MACD explaining the construction and calculation, and introducing a simple buy and sell signals, we now explore the powerful differences.
Bullish Divergence MACD defined, short
Remember that defined MACD is the difference obtained by subtracting the 26-day EMA of closing stock, index or other security closing price of the 12 day EMA of the same value. The second part of the oscillator MACD indicator is the 9-day EMA of MACD indicator itself.
The MACD parlance, the 9-day EMA is called "slow line" and MACD indicator is "fast line". It's relative share of these two lines, along with the price movements and trends in the underlying security, which produce trading signals with the potential to predict upcoming direction of basic security.
We showed previously that the "fast line" and "slow line" Crossovers are the most common but least accurate signals. "Fast line is" crossing over "slow line" should be considered before trading buy signal, and could be also be used as pre-sales for existing signal long positions. "Fast line is" crossing under the "slow line" should be considered pre-sell signal, and can also be used as pre-buy/cover signal for short positions.
But we saved the best for last year. The rarer and considerably more powerful signals Bullish Divergence MACD .
Bullish Divergence MACD apply
As in our previous article, I will use the S & P 500 (SPX) index to illustrate. The figure below shows the traditional daily high-low price near chart (top panel) and MACD (bottom panel) for the last two years:
NOTE: The charts in this article are manufactured by MarketBrowser.
SP500 2 years Table W / Bullish Divergence MACD
Pay attention to the three vertical lines on the chart labeled "1", "2" and "3". "1" on October 10, 2008, marks the first low in the SPX in the fall, which began in October 2007, noting that the MACD is also the first small, -76.994, 2 years is shown in table . "2" on November 21, 2008, a new low in the SPX 741.02, but the MACD, which began to rise shortly after the low marked with "1" is now -53.057. By the time SPX made a new low at 666.79 on March 3, 2008, MACD continued to grow, so it was -40.512.
We have three consecutive declines in successively higher SPX but falls in MACD. This is "bullish divergence MACD", where the index is declining while the MACD trend is the growing trend. This portends an eventual end to the downtrend SPX and then increase the SPX. In fact, this bear market means low (dosega!) From that SPX rose ~ 50%!
MACD apply: bearish divergence
SP500 2 years Table W / bearish divergence MACD
Again, notice the three vertical lines on the chart labeled "1", "2" and "3". "1" on May 8, 2009, marks the first high in the SPX during the growth of the last low on March 3, with the MACD 25.813. "2" on 11 June, marks a new high of 956.23 SPX with MACD in just 17.384. SPX made a new high of 1018.00 on Aug. 7, but only MACD rose to 23.22, below its value at the first SPX high on May 8. This is "bullish divergence MACD", where index is the growing trend while the MACD is flat. This portends the coming end to the rally from March 3 low and then drop in SPX. If you pay attention to the events of August 7, you will see that the MACD has since gone under its slow line, causing pre-sell signal. If this bearish divergence MACD is true, we should expect to see a noticeable decline in the SPX in the coming weeks.
Bullish Divergence MACD Conclusion
We have completed our explanation of the basics of MACD to explain how MACD is calculated. We examine just buy and sell signals generated by the MACD Crossovers between fast and slow divergence MACD lines and zero Crossovers. We have now seen the differences, which are powerful signals that MACD generates. We even have a prediction for the upcoming market action SPX expecting to withdraw, cancellation of the rally since March low. Time will tell ... really!
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