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what is the point of the macd.... |
grizzlybull
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Joined: 26 Sep 2010
Posts: 80
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Post: #1  Posted: Sun Jun 26, 2011 10:40 pm Post subject: what is the point of the macd.... |
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the macd is derived from 2 moving averages, one with the shorter term, the other longer. whenever the shorter one flattens out, the macd converges with its signal line and when the macd crosses the zero line the moving averages cross over. and divergences happen when the up swing is more than the down swing for the first time.
So whats the use of an macd? |
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singh.ravee
Yellow Belt
Joined: 12 Aug 2010
Posts: 678
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| Post: #2 Posted: Mon Jun 27, 2011 9:48 am Post subject: |
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grizzlybull,
kindly read, elder's book on macd. it will answer all you questions on macd.
thanks and regards
ravee |
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jayeshwings007
White Belt
Joined: 02 Mar 2011
Posts: 2
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| Post: #3 Posted: Mon Jun 27, 2011 12:28 pm Post subject: |
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First read " trading for a living"
then " come into my trading room"
I think no one (a technical follower) should start their trading before reading these books.
Otherwise they have to read it later ....lol |
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grizzlybull
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Joined: 26 Sep 2010
Posts: 80
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| Post: #4 Posted: Mon Jun 27, 2011 12:40 pm Post subject: |
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Hi,
er, thanks, I think. Not really the reply I wanted, though,I just thought someone would explain why do you even need an macd when the moving average slopes are good enough.btw I already am in the process of reading elder's books, they are indeed fantastic. I haven't got to the macd part, but since you both recommended it, I will read it imediately. The false signals section by him really helped me, It prevented me from selling tata steel, etc  |
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rrk2006hyd
Yellow Belt
Joined: 13 Oct 2010
Posts: 874
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| Post: #5 Posted: Mon Jun 27, 2011 12:55 pm Post subject: |
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| grizzlybull wrote: | Hi,
er, thanks, I think. Not really the reply I wanted, though,I just thought someone would explain why do you even need an macd when the moving average slopes are good enough.btw I already am in the process of reading elder's books, they are indeed fantastic. I haven't got to the macd part, but since you both recommended it, I will read it imediately. The false signals section by him really helped me, It prevented me from selling tata steel, etc |
Hii..this may help to us ..on MACD..
MACD is special because it brings together momentum and trend in one indicator. This unique blend of trend and momentum can be applied to daily, weekly or monthly charts. The standard setting for MACD is the difference between the 12 and 26-period EMAs.
Chartists looking for more sensitivity may try a shorter short-term moving average and a longer long-term moving average. MACD(5,35,5) is more sensitive than MACD(12,26,9) and might be better suited for weekly charts. Chartists looking for less sensitivity may consider lengthening the moving averages.
A less sensitive MACD will still oscillate above/below zero, but the centerline crossovers and signal line crossovers will be less frequent.
MACD is not particularly good for identifying overbought and oversold levels. Even though it is possible to identify levels that are historically overbought or oversold, MACD does not have any upper or lower limits to bind its movement. MACD can continue to overextend beyond historical extremes during sharp moves.
MACD calculates the absolute difference between two moving averages. This means MACD values are dependent on the price of the underlying security. MACD for a $20 stocks may range from -1.5 to 1.5, while MACD for a $100 may range from -10 to +10. It is not possible to compare MACD values for a group of securities with varying prices. An alternative is to use the Percentage Price Oscillator (PPO), which shows the percentage difference between two moving averages.
for further click on this
http://stockcharts.com/help/doku.php?id=chart_school:technical_indicators:moving_average_conve |
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singh.ravee
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Joined: 12 Aug 2010
Posts: 678
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| Post: #6 Posted: Mon Jun 27, 2011 3:33 pm Post subject: |
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grizzlybull,
my point is read macd from elder and take a copy pencil. understand the working of macd first. test it for few stocks wherein u urself calculate the macd values. all ur questions will be answered by doing so.
this is the only way, that i know to learn an indicator. this way was shown by a senior trader in icharts itself.
thanks and regards
ravee |
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grizzlybull
White Belt
Joined: 26 Sep 2010
Posts: 80
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| Post: #7 Posted: Mon Jun 27, 2011 3:49 pm Post subject: |
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| singh.ravee wrote: | grizzlybull,
my point is read macd from elder and take a copy pencil. understand the working of macd first. test it for few stocks wherein u urself calculate the macd values. all ur questions will be answered by doing so.
this is the only way, that i know to learn an indicator. this way was shown by a senior trader in icharts itself.
thanks and regards
ravee |
I already know how the macd works. I myself made a profit in cipla, jp associates and tata steel last year using the macd.
My point is the buy signals happen around the time the shorter moving average on the chart starts to flatten out. I was questioning the effectiveness of the signal line cross over, not the working of macd. My question was "what is the point of using macd", not "how to use macd".
and as far as macd divergences are concerned, the same can be found out just by checking the strength of the upswing/downswing. divergences happen only when the power of bulls/bears is diminishing. |
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Transcap69
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Joined: 13 Mar 2011
Posts: 44
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| Post: #8 Posted: Mon Jun 27, 2011 9:54 pm Post subject: |
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GB,
Somewhere you are right when it comes to the use of MACD signal line cross-over.
MACD originally devloped by Gerald Appel can be used in the following ways:
a. Signal & MACD line Cross over
b. When the MACD histogram crosses over -below the Zero line
c. Divergence for MACD histogram-Peak &/or Bottom
d. Price divergence from Slope
By the time MACD histogram crosses over-below the zero line the trend is confirmed and you enter as a trend following trader,in contrast there are many traders would like to have an handsome position in an early trend,thus they would use c,d rather than b.Second advantage of using MACD histogram crossover is that it frees traders from using MA's .
So to summerise "What is the use of MACD??
It caters the need of both trend traders as well as reversal traders.
Reduces noise from MA's since it is a combination of three (not two!) doubly smooth averages.
In case you compare crossovers EMA with MACD cross-overs you shall find MACD cross-overs always give an early signal(Of course there may be a whipsaw).In my personal opinion well it is always better to test the strength of bulls /bears thru a divergence (since the divergence is an reflecting time period over a chosen length) rather than a visual inspection.
You are correct also ,in today's market's majority of the price action is news based so overtime the indicator's importance has diminished
Thanks.
Amit |
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grizzlybull
White Belt
Joined: 26 Sep 2010
Posts: 80
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| Post: #9 Posted: Mon Jun 27, 2011 10:12 pm Post subject: |
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| Transcap69 wrote: |
In case you compare crossovers EMA with MACD cross-overs you shall find MACD cross-overs always give an early signal(Of course there may be a whipsaw).
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I agree, the MACD crossover happens before the ma crossover, but the macd crossover happens at the same time as the flattening of the shorter ma, so there's no real reason to look at MACD signal line crossover.
Well, visual inspection vs observation of divergence depends upon the trader I guess. But usually it's the same result right? because macd is just based on price I guess. thanks for the reply  |
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