MACD = Moving Average Convergence Divergence, a momentum that follows the latest trend, showing the relationship between two moving averages
MACD = 12-period EMA – 26-period EMA
Since it is a subtraction, there will be a positive value and a negative value. When the blue line is above red line, the value will be positive, Conversely, the value will be negative. The farther the distance between two lines are, the obvious the stock momentum is.
Other than two lines, there is also one histogram that indicates the subtracted value mentioned earlier, hence it will be positive value when blue is above red.
Traders will use this as an indicator, where they buy when the value turns positive (also known as golden cross), and sell when the value turns negative (also known as death cross). Let see some examples whether this works.
Let also not just see some good examples, let see some examples that don’t work.
So, why will we lose money even using MACD indicator? This is because it is a laggard indicator, that was calculated based on their historical performance, hence a good performance before will not equal to a good performance now.
This is also one of the disadvantage of MACD: False positive. This means that the positive value does not necessary indicate the stock will move uptrend, but can be sideways too.
Other than just golden cross and death cross, we can also try the combination of price and MACD to prevent false positive as much as possible, and it is called bullish and bearish divergence.
The second MACD was higher than the first one, but price wise, the second one is lower than the first one. This is called bullish divergence, that presume the stock will move upwards in a longer term, and it did.
This time, the second MACD was lower than the first one, but price wise, the second one was higher than the first. This is called as bearish divergence, where they see the share price to fall in longer term, and well that is true as well.
HOWEVER, this does not mean that every time this happen, the share price must move up or down. This is just example that did, there maybe also some that defy this logic.
In short, MACD itself does not necessary be effective, but it also need the help from other indicators as well. Besides, TA is mainly used on trading but not investing, hence the risk is still there as indicators may not always be right. Fundamental of the company still remain the priority, but also be assisted by indicators like this to buy or sell.
MACD = 移动平均总汇的分或离，它是一个跟着最新趋势的势头，并且显示两个移动平均线之前的关系。
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