Description

Mkdy  (MACD)  is a popular technical indicators of the family  “routing” that has the ability to detect momentum. Interestingly, this technical indicator is designed based on moving averages. In this section, we will go to the “Makdi indicator”  and get more familiar with it. Stay with us.

Familiarize yourself with the elements of the MACD indicator (MACD)

• Makdi line:  This line is the heart of the Makdi indicator. The suction line shows the difference between exponential moving averages with periods (12) and (26). The McDee indicator is a “complete moving average intersection system” that has its own fans among analysts. Because it determines the amount of change in the direction and strength of the trend through the analysis of moving averages.
• Signal line:  The signal line is an exponential average with period (9) and based on the output data of the sucker line.
• Makdi histogram:  This histogram shows the difference between the signal line and Makdi.

In this speech, our main focus is on the signal and suction lines. In fact, by using the combination of these lines, we want to receive meaningful and correct signals from the price chart. Histogram is not the main basis of our decision making. Because it does not have a significant effect on the strength of trading signals.

In this image, the Makdi indicator is displayed in standard and default histograms in the background, which is not necessary for our trading purposes. A fast-reacting line is a sucker, and a slower-moving line is a signal. We use the default period settings (12), (26) and (9).

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What are the trading signals based on the Makdi indicator?

To use the Makdi indicator as a trading system, we can use two powerful and unique strategies:

1- Intersection of suction line and zero level

The vertical lines in the image below show the intersection points of the sucker line and the zero level in the indicator window. Of course, we have also added averages (12) and (26) to the chart to make it more transparent. The intersection of the moving averages in the diagram gives a signal similar to the suction lines. Because McDee is based on these two moving averages. The intersection of two moving averages is a sign of a change in trend structure. In fact, the bearish intersection of short and long-term averages – the short-term average below the long-term average – means that the price falls below its long-term average, which in most cases signals the beginning of a new downtrend. Now look at the position of the vertical lines in the price chart. These lines accurately depict the intersections of moving averages.

In most cases, if two moving averages intersect, this will be a sign that a new signal is occurring in the Makdi indicator. This graph analysis clearly shows that the sucker lines effectively show the trend change and confirm its direction.

2- Signal line

The power of the current trend increases as the lines in the McDee indicator window move away. Because in this situation, the price is growing faster than in the past. So as the two lines move away from each other, the strength of the process will increase. On the other hand, when the two signal and sucker lines converge – or in other words, converge – it indicates that the trend is weakening. In fact, as long as the price moves above the moving averages and the Makedi lines are above the zero line, the market is on an uptrend. All of these tips are useful for better understanding the status of the price chart. In the image below, we see that the signal line shows the direction of the trend well. In this image, the vertical lines indicate the intersection points in the indicator and the price chart.

Section  (1)  shows a short uptrend in which the Makdi lines intersect rapidly.  A stronger trend can be seen in Section  (2) , and both lines of the Makdi indicator have been below the zero line for a long time. At the beginning of the third part, McDee issued an ascending signal. In fact, the Makdi lines have always moved above the zero line during this uptrend. During a neutral market, the sucker lines and the signal move very close to each other and fluctuate around the zero point.

In fact, from the state of Makdi indicator lines, it is perceived that in the current situation, there is no trend and momentum. As a result, Makdi does not perform as well as moving averages in trend-free or neutral markets and should not be used. If the price suddenly causes an uptrend and starts moving in a certain direction – up – the two lines of the Makedi indicator grow and move away from each other. Many traders use plotting support and resistance levels in the MacDay indicator window to detect such breaks. The current trend is over when the suction and signal lines are flattened again to zero. Naturally, this does not mean a sudden and complete change in the direction of the price, but only a gradual weakening of the strength of the trend.

How to use suction signals?

The image below shows a simple and common example of how the Makdi indicator is used in the trading process. After breaking the trend line on the left in the Makdi indicator window – point 1 – a new uptrend has started. During an uptrend phase, the suction line has always been above the zero line. Therefore, the price has been constantly moving above the averages (point 2). In the stabilization phase, ie point 3, we used trend lines to detect the corner pattern. As the price moved out of this range, the Makdi lines grew again and separated from each other (point 4). At the end of the process, we see a divergence (point 5). The probability of price return and trend change in such circumstances is very high. Because the occurrence of a divergence signal leads to a decrease in buying tendencies. Then, with the simultaneous occurrence of a decreasing break between the price and the averages, a downward intersection of the moving averages and the fall of the suction line below zero, a new downward trend has begun; To the point (6)  Note.

The MacDay Indicator is an ideal tool for tracking price movements in trend markets.

What is meant by Makdi divergence?

Despite registering new ceilings during the uptrend, McDee tends to create lower ceilings and thus diverge. In such a situation, the trader must wait for the price to break the moving averages decisively and, in the best possible case, a new price floor will be created in the price chart.

The divergence of the Makdi indicator predicts a change in the direction of the trend.

What is the best indicator?

Remember that  no indicator is superior to another. In fact, it always depends on the use of the indicator and how it is used by the trader. An indicator is a graph analysis tool designed for a specific purpose. Many traders mistakenly use indicators in inappropriate situations. Let us give an example to clarify the matter. Consider a hammer; Normally, this device is only suitable for nailing. If you use it to tighten the screw, it will not result in anything but damage. However, it should not be taken for granted that a hammer is an unsuitable tool.

In fact, the main thing is to  use the right tools in the right conditions  . The same is true of technical indicators. The first point in order to use it correctly is that the market conditions are very clear. That is, should we know that we are in a process phase or neutral? Then you can choose the right indicator for the correct analysis of the price chart. In addition, an indicator does not provide complete and independent trading signals and only displays certain graphical cues. Although this tool simplifies the decision-making process, it is not the mainstay of your trading strategy. Therefore, indicators should only be used as trading evidence to create intersections in the price chart.

Take a look at the path ahead for you as a trader

Even after studying and understanding many points, trading is by no means easy. In the process, fears and doubts quickly overwhelm traders. Therefore, you should look for a personal and optimal trading strategy so that you can taste victory in the trading field.

Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages in a chart. Shows the price of securities.

The Makdi indicator has many applications in technical analysis.

The MACD is obtained by subtracting the 26-period moving average from the 12-period moving average.

The result of this calculation is the MACD line.

Then, a 9-day moving average of the MACD, called the signal line, is drawn on the MACD line, which can export the buy and sell signals.

Traders usually buy securities when the MACD crosses their signal line and goes higher, and sell (or shorten) the securities when the MACD crosses the signal line and goes lower.

MACD indicators can be interpreted in different ways, but the most common methods include intersections, divergences, and rapid price increases / decreases.

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MACD formula

Makdi is calculated as follows:

26-day moving average – 12-day moving average = MACD

The MACD is obtained by subtracting the long-term moving average (26 periods) from the short-term moving average (12 periods).

We mean 12 or 26 periods, 12 days or 26 days, 12 or 26 weeks or, for example, 12 or 26 hours.

Interval settings can be changed on technical analysis software.

The exponential moving average (EMA) is a type of moving average (MA) that gives more weight and importance to some recent data points.

The exponential moving average is also known as the moving average, which has an exponential weight. A moving average that weighs exponentially is more responsive to recent price changes. But a simple moving average (SMA) gives the same weight to all observations over a period of time.

Important Notes:

• The MACD is calculated by subtracting the moving average of 26 periods from the moving average of 12 periods.
• When the MACD crosses its signal line and goes up or down, it actually produces technical signals.
• The speed of intersections (cuts) is also considered as a signal that the market is in an overbought or oversold position.
• The MACD helps traders identify whether uptrends in the market are strengthening or downtrends.

Better understanding of the Makdi indicator

The MACD value is positive when the moving average (blue) is 12 periods higher than the moving average (red) of 26 periods, and the MACD value is negative when the moving average is 12 periods lower than the moving average of 26 periods.

The higher or lower the MACD distance from its baseline, the greater the distance between the two exponential moving averages.

In the chart below, you can see how the two moving averages applied in the price chart correspond to the MACD (blue) line that passes above or below the baseline (red dashes).

The MACD is often represented by a histogram (shown in the diagram below) that shows the distance between the MACD and its signal line in the form of bars.

If the MACD is above the signal line, the histogram will be above the MACD baseline. And if the MACD is below the signal line, the histogram will be below the baseline. Traders use the MACD histogram to determine when the uptrend or downtrend is high.

MACD compared to Relative Strength Index (RSI)

The purpose of the Relative Strength Index (RSI) is to generate a signal when overbought or oversold conditions are provided according to recent market prices.

Relative Strength Index (RSI) is an oscillator that calculates average price gains and losses over a period of time. The RSI period is 14 cycles by default and the RSI fluctuates between zero and 100.

The MACD measures the relationship between two exponential moving averages, while the Relative Resistance Index measures price change relative to recent highs and lows. Analysts often use these two indicators together to get a more complete technical picture of the market.

These indicators measure both momentum (market size) of the market, but because they each measure different factors, they sometimes present opposite signs.

For example, the relative resistance index may be above 70 in a stable period of time, meaning that the market has become too buoyant due to recent prices, while the MACD indicates that the market is still momentarily rising. Is a purchase.

Each indicator may signal a change in trend ahead by showing a divergence of price. Divergence means that the price continues to rise while the indicator bounces back and down, or vice versa.

MACD Limits

One of the main problems with divergence is that it often generates a signal for a possible reverse trend but in practice does not reverse the trend.

Another problem is that divergence cannot predict the reversal of all trends. In other words, this indicator sends a lot of signals of a reversal, but this does not happen, but it does not predict some real reversals.

False positive divergence occurs when the price of an asset moves in the suffering range (neutral trend), for example after a trend in a triangle pattern.

Momentum slowing of prices (price movements in the range of suffering or slowing of the trend) causes, even in the absence of a real reversal, the MACD deviates from its highest level and tends to the zero lines.

Example of intersections in MACD

As shown in the chart below, when the MACD goes below the signal line, it creates a bearish market signal, which is a good time to sell.

Conversely, when the MACD goes above the signal line, the bullish market signal indicates that the asset is likely to move upwards.

Some traders are waiting for an approved intersection above the signal line to reduce the possibility of being deceived and entering the trading position early.

Intersections are more reliable when they are in line with the prevailing trend.

If the MACD crosses its signal line after a short correction during the long uptrend and can go higher, it can be a reliable confirmation of the formation of an uptrend in the market.

If in a longer-term downtrend, as a result of a slight price increase, the MACD falls below its signal line, traders should consider it a confirmation of a downtrend.

An example of divergence

Divergences are market conditions in which there is a clear contrast between price and other tools of technical analysis, indicating small and large market fluctuations in the future. This situation indicates the weakness of the trend and indicates that a change in the trend is imminent.

In other words, divergence means the weakness of a trend and is observed when prices and indicators move in opposite directions.

Divergence in MACD occurs when the MACD forms upper and lower values ​​that move away from the corresponding upper and lower values ​​on the price chart.

An upward divergence occurs when the MACD forms two low-value values ​​that correspond to two low-value values ​​on the price chart.

These conditions are a valid uptrend when the long-term trend is still positive. Some traders look for upward divergences even when the long-term trend is negative, because even though this technique is less credible, it can indicate a change in the trend.

A downward divergence occurs when the MACD forms a set of two declining ceilings corresponding to two high values ​​rising on the price chart.

A downtrend that forms during a long downtrend confirms the likelihood that the downtrend will continue.

Some traders are looking for bearish divergences during long-term uptrends because they can see the signal of weakness in the trend in Makedi. However, this is not as reliable as a downtrend during a downtrend.

An example of a rapid descent or ascent

The rapid decline or rise of the MACD (moving away from the short-term moving average above the long-term moving average) indicates the existence of an oversold or oversold situation in the price of securities, which will quickly return to normal levels.

Traders often combine this analysis with a relative strength index or other technical indicators to confirm a buy or sell sell.

For investors, using the MACD histogram is not as uncommon as using the MACD itself.

Positive or negative intersections, divergences, and rapid ups and downs can also be identified on the histogram. Investors need to have enough experience before deciding on the MACD or its histogram in a given situation because there is a time difference between the signals of the two.

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