MACD shares properties in common with other different types of technical indicators, so I like to think this indicator as the "mutt" of technical indicators. MACD does indicate momentum by revealing the strength of the current trend, and also can be used to identify an oversold/overbought condition. So IMO this indicator shares properties with both the Stochastics and the DAHL.
Trades can be made when the MACD starts sloping up and crosses its signal line, and also whe it crosses its zero line. It also tends to respect its previous peaks, and if it moves past a previous peak, then this would indicate a strong uptrend in in progress.
So the MACD can be used in both a trending situation, like the moving average and DAHL, and in a trading range situation, like the Stochastics oscillator.
Trendlines can be used with MACD, but not as well as with RSI for instance. I find an S&R approach to be more worthwhile, particularily noting in this way support and resistance lines that describe previous highs and lows of this indicator.
Convergence and divergence is worth noting with this indicator, but I do not place as much weight on it as I would with the covergence/divergence of RSI, Stochs, OBV, and even the Accum/Dist, for instance. A stock in the middle of a consolidation can have a MACD cycle down and still price-wise stay above important resistance levels. However, if this indicator is making sucessively lower bottome on its cycles as the stock price is cycling up, then I would place much more weight on this type of divergence.
Bob Graham |
