Some Aspects of the MACD Indicator Udo Stegen © 2004 by Rettmer Trading Trust © 2004 by Rettmer Trading Trust [email protected].
Download ReportTranscript Some Aspects of the MACD Indicator Udo Stegen © 2004 by Rettmer Trading Trust © 2004 by Rettmer Trading Trust [email protected].
Some Aspects of the MACD Indicator Udo Stegen © 2004 by Rettmer Trading Trust © 2004 by Rettmer Trading Trust [email protected] MACD Aspects Moving Average (always Exponential MA) Convergence and Divergence MACD measures the distance between two EMAs and graphs their relationship, as the two lines move closer together (“converge”) and further apart (“diverge”). © 2004 by Rettmer Trading Trust [email protected] MACD Components © 2004 by Rettmer Trading Trust [email protected] MACD Delta: Visual Proof © 2004 by Rettmer Trading Trust [email protected] MACD: Interpretation (a) Mathematical Any Mathematicians here? Any Physicists? © 2004 by Rettmer Trading Trust [email protected] MACD: Interpretation (a) Mathematical dP/dt = v first derivative of travelled distance over time is velocity dv/dt = a first derivative of velocity is acceleration © 2004 by Rettmer Trading Trust [email protected] MACD: Interpretation (b) Road-wise Read red “Delta” line as “Speed” © 2004 by Rettmer Trading Trust [email protected] MACD: Interpretation (b) Road-wise Read red “Delta” line as “Speed” at which the Price changes faster or slower than average Positive : drive forward – price rises above average; Negative: slow down/ reverse – price falls below average © 2004 by Rettmer Trading Trust [email protected] MACD: Interpretation (b) Road-wise Read red “Delta” line as “Speed” at which the Price changes faster or slower than average Positive : drive forward – price rises above average; Negative: slow down/ reverse – price falls below average Yellow “Histogram” is “Acceleration” © 2004 by Rettmer Trading Trust [email protected] MACD: Interpretation (b) Road-wise Read red “Delta” line as “Speed” at which the Price changes faster or slower than average Positive : drive forward – price rises above average; Negative: slow down/ reverse – price falls below average Yellow “Histogram” is “Acceleration” at which the Speed changes faster or slower than average Positive : accelerate – increase the speed Negative: hit the brakes – slow down © 2004 by Rettmer Trading Trust [email protected] MACD: the Accelerator Q: What comes first: Acceleration or Speed? (Hint: Ignore friction; just roll along in Neutral.) © 2004 by Rettmer Trading Trust [email protected] MACD: the Accelerator Q: What comes first: Acceleration or Speed? A: Neutral means cruising at average speed. To change, someone must step on a pedal. ─► “Mr Market, the Chauffeur” © 2004 by Rettmer Trading Trust [email protected] MACD: Effects of “the Pedal” © 2004 by Rettmer Trading Trust [email protected] MACD: Divergence Conditions causing Divergence Sustained Trend Purposeful and Effective Use of Pedals Sufficient to reverse effects of Inertia © 2004 by Rettmer Trading Trust [email protected] MACD: Signs of Success “Action equals Reaction” To neutralise the effects of acceleration over time, we must apply the same amount of braking power over time. “… and then some more” To reverse the trend, we must then apply more power in the new (opposite) direction. © 2004 by Rettmer Trading Trust [email protected] MACD: Signs of Success Speed crossing zero, momentum used up To start new trend, apply more power How © 2004 by Rettmer Trading Trust much? [email protected] MACD: Enter Long – How long? Momentum used up, Will it turn? After enough initial Push, we’re cruising. © 2004 by Rettmer Trading Trust [email protected] MACD: Example HVN © 2004 by Rettmer Trading Trust [email protected] MACD: Divergence Divergence lines follow Trendline Rules – Falling = Resistance – Rising = Support – Comparable Turning Points Start: Determine a new trend in MACD (Delta or Histogram). If corresponding Price trend “diverges”, we have Divergence. © 2004 by Rettmer Trading Trust [email protected] MACD: Entry Rules Establish Divergence Interval Longest Histogram Bar sets Trigger (Draw auto-extending Horizontal trendline) Enter on break of Trigger line – OR Wait for Delta Line to cross Zero (depending on duration of prior trend) © 2004 by Rettmer Trading Trust [email protected] MACD: Exit Rules Days 1 to 4 after entry: Be aware of potential “false break”. Stop-loss quickly While Speed stays on side of trade: Stay When Speed crosses Zero: Exit Or apply any Exit Rule from your Plan. © 2004 by Rettmer Trading Trust [email protected] MACD: Example BSL © 2004 by Rettmer Trading Trust [email protected] MACD: Rules Modified Divergence lines follow Trendline Rules Longest Histogram Bar sets Trigger Invalidated when – Delta line crosses trendline extension – Price line ceases to diverge …but… Do Not Ignore the Volume! © 2004 by Rettmer Trading Trust [email protected] MACD: The Missing Link © 2004 by Rettmer Trading Trust [email protected] Questions ??? © 2004 by Rettmer Trading Trust [email protected]