Timing Solutions for Swing Traders: A Novel Approach to Successful Trading Using Technical Analysis and Financial Astrology

MACD

Moving average convergence/divergence, or MACD, was developed by Gerald Appel. It is a popular momentum indicator that shows the relationship between moving averages of prices. It has two plotted lines. The standard configuration for MACD, the first plotted line, is the difference between 12-day and 26-day exponential moving average lines. The second line, also known as the signal line, is a 9-day exponential moving average of the first line.

Figure 6.15 shows the plot of MACD.

FIGURE 6.15 The upper window shows the plot of MACD and its signal line. The plot of the difference of the two lines is shown in histogram bars. Note the early signals shown by the divergence of histogram bars, warning of a slowdown of price momentum as it approaches its top. The lower window shows the plot of the 50-day, 90-day, and 200-day moving average lines. Note that price trend turns positive upon the crossing of the 50-day and 90-day, holding off selling pressure at the 90-day average line.

The buy and sell signals used in MACD are similar to those used in crossovers of moving average lines. When the MACD line crosses above the signal line, a buy signal is triggered. Conversely, when the MACD line crosses below the signal line, a sell signal is generated. When MACD and its signal lines are above the zero line, it indicates bullishness in the market, and when they are below the zero line, it ...