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MACD


Using The Moving Average Convergence/ Divergence (MACD) Indicator

06/12/00 11:13:20 AM
by Jason K. Hutson

Look at the chart for International Business Machines(IBM) There seems to be a buy signal created by using the MACD crossover.

Security:   IBM
Position:   Buy

The moving average convergence/divergence (MACD) is a momentum oscillator developed by Gerald Appel in the early 1970s. The MACD measures the divergence or convergence of a shorter moving average with a longer moving average and is represented in two ways: a line form and a histogram. In this chart the histogram version is displayed. In the line version you will see two lines, the "fast" line which is the difference between the 12- and 26-period exponential moving average (EMA), and the "signal" line which is the EMA of the fast line.

The histogram displays the difference between the fast and signal lines and are plotted above or below the zero line. It is the crossovers of the fast and signal lines, movement through the zero line, and divergences that generate the buy and sell signals.

A sample code for calculating the MACD is:

Calpha12 = 2/(12+1)
Calpha26 = 2/(26+1)
Calpha9 = 2/(9+1)
Clast = last price

The difference between the 12-period and 26-period exponetial moving averages has turned from a negative number to a positive number. This is shown above in the chart as "buy signal".
Graphic provided by: CQG.
 
*12 period exponetial moving average
EMA12N = Calpha12*(Clast) + (1-Calpha12)*Clastema12

*26 period exponetial moving average
EMA26N = Calpha26*(Clast) + (1-Calpha26)*Clastema26

MACD
CDIFFMACD = EMA12N - EMA26N

Signal Line
EMAMACD = Calpha9*CDIFFMACD + (1-Calpha9)*Clastmacd




Jason K. Hutson

Traders.com Staff Writer. Enjoys trendlines, support and resistance, moving averages, RSI, MACD, ADX, Bollinger bands, parabolic SAR, chart formations, and volume analysis.

Title: Industrial Engineer
Company: Technical Analysis, Inc.
Address: 4757 California Ave SW
Seattle, WA 98116
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Website: Traders.com
E-mail address: JasonHutson@Traders.com

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