I'm no expert on MACD, Eric. In any case, MACD hasn't been all that reliable during this volatile period in the market. MACD works best when stocks are trending. When they're not trending, it's still useful as a confirmation indicator, though.
What that means is: If you see a good buy signal with a candlestick pattern or some other indicator you like, it's often helpful to check to make sure that MACD is moving in the direction of your trade. In a lot of stocks now, MACD 13/34/89 is trending down, and heading for a 0 crossover. You should be very cautious with your long trades when you see that. MACD 8/17/9 is starting to look oversold in the same group of stocks, and it might turn up soon. But with 13/34/89 bearing down on the stocks, any rallies might bve short-lived. Then again, they might not, because 13/34/89 might turn back up, too.
During this volatile market, MACD with periods like those you mention -- 5/14/6 -- has been more reliable than 8/17/9, because the reversals have been so quick and frequent.
The best trades seem to be the ones where MACD in all periods is moving in the direction of your trade (up if you're long).
But as I said, MACD has been unreliable in this market. Use something more reliable for your primary signals. When there's no trend, moving averages and oscillators aren't quick enough to respond to all the gyrations. By the time you're in your trade, the market is taking off in another direction.
As to what primary indicators to use, I'd suggest candlesticks. But you really have to have a good knowledge of them, a feel for them, to make any headway with them. Monty does. I don't.
I think the most important thing is to make sure at all times that your focus is on minimizing any losses. Forget the chart; if your losses are mounting, get out of the trade. Before each trade, you should know how much you're prepared to risk, and get out the moment you're losing more. I don't care whether money management is deemed off topic under a narrow-minded definition of TA. If you're not mindful of it at all times, you'd be better off in Vegas. You could have the best indicators and systems there are, but without money management, you might as well speed off in the world's fastest car and not look at the road, thinking the car will keep you on track. Money management is the road in TA. MACD, candlesticks, all the mumbo-jumbo you can cook up in your charting programs, won't do you any good if you don't keep yer eye on the road.
For all their knowledge of indicators and systems, some of the best technical analysts wind up going right off the road, into the gutter or over the precipice. |
