Buy Signals Sell Signals: Strategic Stock Market Entries and Exits pdfdrive com

MACD Signals
- When the MACD line crosses over the signal line it is buy signal.
- When the MACD line crosses below its signal line it is sell signal.
The MACD is a technical indicator that attempts to measure momentum of a
market’s price action. It converts two moving averages into two lines on a chart
by subtracting the longer term moving average from the shorter term moving
average. The MACD shows the relationship between two moving averages.
The formula the MACD uses to calculate its lines comes from the 26-day
exponential moving average, and the 12-day exponential moving average of a
market. The 26-day EMA is subtracted from the 12-day EMA to create a line.
Then the 9-day EMA of the MACD is placed with the sum of the first lines to
create signals for entries and exits based on crossovers. The second line is used
as a signal line as it crosses over the first.
MACD is about the relationship between two intermediate term moving
averages. Its signals are based off of convergences and divergences of these
moving averages. The convergence of its lines indicates the likelihood that a
market is in a trading range. A divergence of the two lines as they move away
from each other occurs during trends in that market.
The MACD is primarily used for swing trading signals on crossovers of the
MACD line over the signal line. The MACD is not useful for identifying
overbought and oversold markets as it is a measurement of convergence and
divergence of two moving averages around a ‘0’ line.
MACD can work as a standalone indicator in markets with wide price swings,
but the probability of success increases when it is used with other technical
indicators for confirmation.
The MACD also has a histogram in the indicator box along with the two lines.
The histogram is calculated by subtracting the 9-day EMA line from the MACD-
line. The slope of the histogram above or below the ‘0’ line is a sign of the trend
of the market. The histogram above zero shows upwards momentum and below
‘0’ shows downtrend potential.

---

Charts courtesy of StockCharts.com.

---

Basic system examples
“The "easier money" in this difficult business of professional speculation is
following the path of least resistance until that path has changed.” – Richard
Weissman