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Strategies & Market Trends : Technical Analysis - Beginners
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To: MechanicalMethod who wrote (11097)1/30/2001 5:08:34 PM
From: HairBall  Read Replies (2) of 12039
 
MechanicalMethod: You don't understand how the MACD formula works. You can't throw out the 21, 34 or 5.

The blue line is a product of the 21 and 34 with the red line being that product smoothed by 5 intervals to act as a signal line.

By the way, I've been using the above combination for several years...<g> They work fairly well, but I would never use them as a stand alone signal.

Regards,
LG

Attachment:

The Moving Average Convergence Divergence (MACD) Trading Method is a price momentum indicator developed by Gerald Appel. This oscillator is based on the point spread difference between two exponential moving averages of the closing price. The two exponential moving averages used are:

A 12 period exponential moving average .
A 26 period exponential moving average.

The difference between these exponential moving averages is then smoothed by a 9 period exponential moving average. This is called the signal line.

When MACD is negative and below the signal line, you are poised for a buy signal. This occurs when MACD rises above the signal line. Likewise, when MACD is positive and above the signal line, you should be ready to sell (sell short) when it drops below the signal line. MACD is sometimes plotted as a histogram, but is much easier to see when plotted as a line. This makes identification of the exact crossover points much easier.
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