Catch Trends With the Macd Indicator

When the market has pronounced movements in one direction or the other, and the amplitude of these movements is quite large, the style of the game is similar to riding on a board on the waves. You need to catch an upward or downward wave, ride it and jump off as soon as this wave ends. Obviously, the most important in this game is to search for the beginning of the waves and predict their completion.

In technical analysis, there is an indicator, which is just intended for this. It is called "Moving Average Convergence / Divergence" or "Moving Average Convergence / Divergence". The MACD indicator is calculated by all technical analysis packages. To understand how to calculate it manually, use the link provided here. There is also an example of MACD analysis for Gazprom shares.

MACD is calculated as the difference between two exponential moving averages with periods of 12 and 26 days. To analyze the current situation, the MACD itself is plotted on the chart, as well as the signal line - a 9-day EMA from the indicator itself.

Trading signals is the intersection of the indicator line and the signal line. When the MACD indicator falls below the signal line, it is a signal to sell, and when it rises higher - vice versa, to buy. These intersections indicate overbought / oversold conditions and discrepancies.

The meaning of overbought or oversold is to catch the moments when the price of paper is clearly overstated or, accordingly, understated. That is, either bulls or bears were too active in the market. It is logical that after such a stage of activity, the trend is likely to break, and a return to a more realistic level will begin. At the beginning of this moment, the paper will be profitable to sell or buy appropriately.

State discrepancy is, in fact, the discrepancy between price and MACD. Divergence (or divergence) of bulls occurs when the MACD indicator reaches its maximum, and the price can not reach a maximum at that. For the divergence of bears - the opposite is true.

Both these states signal a trend break. The strongest signal occurs during the coincidence of these states. This happens only a few times a year.