MACD indicator explained / Technical Analysis for beginners
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MACD:- Meaning And Calculation Formula
Moving Average Convergence/Divergence (MACD)
Introduction
Developed by Gerald Appel, Moving Average Convergence/Divergence (MACD) is one of the simplest and most reliable indicators available. MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics.
These lagging indicators are turned into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits.
MACD Formula
The most popular formula for the MACD is the difference between a security's 26-day and 12-day Exponential Moving Averages(EMAs).
Of the two moving averages that make up MACD, the 12-day EMA is the faster and the 26-day EMA is the slower. Closing prices are used to form the moving averages. Usually, a 9-day EMA of MACD is plotted along side to act as a trigger line. A bullish crossover occurs when MACD moves above its 9-day EMA, and a bearish crossover occurs when MACD moves below its 9-day EMA.
The histogram is positive when MACD is above its 9-day EMA and negative when MACD is below its 9-day EMA.
Interpretation
MACD is a trend following indicator, and is designed to identify trend changes. It's generally not recommended for use in ranging market conditions. Three types of trading signals are generated,
* MACD line crossing the signal line.
* MACD line crossing zero
* Divergence between price and MACD levels
The signal line crossing is the usual trading rule. This is to buy when the MACD crosses up through the signal line, or sell when it crosses down through the signal line.
When the MACD line crosses through zero on the histogram it is said that the MACD line has crossed the signal line.
The histogram can also help visualizing when the two lines are coming together.
A crossing of the MACD line up through zero is interpreted as bullish, or down through zero as bearish.
Positive divergence between MACD and price arises when price makes a new selloff low, but the MACD doesn't make a new low(i.e. it remains above where it fell to on that previous price low). This is bullish, suggesting the downtrend may be nearly over.
Negative divergence is when price makes a new rally high, but MACD doesn't rise as high as before, this is bearish.
Trading Signals
First check whether price is trending. If MACD is flat or stays close to the zero line, the market is ranging and signals are unreliable.
Go long when the MACD line crosses the signal line from below.
Go short when the MACD line crosses the signal line from above.
Signals are far stronger if there is either:
a divergence on the MACD line; or
a large swing above or below the zero line.
To Calculate MACD :-
Column | Description | Formula to enter
A = Company Name/date
B = Open
C = High
D = Low
E = LTP/close
F = Volumes
G (12DAY EMA) = first we have to calculate 12-Day Ema:
For 12 day Ema,we have to calculate 11-day Simple mov.aver(SMA).
Formula= Sum(E2:E12)/11 , enter formula in G12
In 13 row of G column we have to calculate ema
EMA formula = price today * k + EMA yesterday's * (1-k) where N is number of days in your ema
OR
X(EMA) = (K x (C - P)) + P
X = Current EMA,
C = Current Price,
P = Previous period's EMA*,
K = Smoothing constant
(*A SMA is used for first period's calculation),K = 2/(1+N),N = Number of periods for EMA
calculation
K = 2/(1+N)
12day=2/(12+1)=0.15
26day=2/(26+1)=0.074
so formula for 12day ema would be =E13*0.15+G12*(1-0.15) OR (0.15*(E13-G12))+G12, enter formula in G13, copy the formula till latest closing price.
H (26DAY EMA) = now we have to calculate 26 day ema,so u have to go thru the Mov.Aver.formula steps once again:
we have to calculate 25-day Simple mov.aver(SMA).Formula= =Sum(E2:E26)/25 enter formula in H26
so formula for 26day ema would be =E27*0.074+H26*(1-0.074) OR (0.074*(E27-H27))+H27,enter formula in H27,copy the formula till latest closing price.
I (MACD[FAST LINE])= Subtract 26-day ema from 12-day ema.so formula =H27-G27, enter in I27,copy the formula till latest closing price.
J (9-day ema[Slow Line]) = first we have to calculate 9-Day Ema of MACD(trigger/signal line)
calculate 8-day Simple mov.aver(SMA).Formula =SUM(I27:I34)/8,enter the formula in J34
then,Ema kicks in
K = 2/(1+N), so 2/(9+1)=0.2
=I35*0.2+J34*(1-0.2),enter the formula in J35,copy the formula till latest closing price.
K (MACD Histogram)= we have subtract Slow line(J34)from Fast line(I34) so formula =J34-I34,enter in K34,copy the formula till latest closing price.
Introduction
Developed by Gerald Appel, Moving Average Convergence/Divergence (MACD) is one of the simplest and most reliable indicators available. MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics.
These lagging indicators are turned into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits.
MACD Formula
The most popular formula for the MACD is the difference between a security's 26-day and 12-day Exponential Moving Averages(EMAs).
Of the two moving averages that make up MACD, the 12-day EMA is the faster and the 26-day EMA is the slower. Closing prices are used to form the moving averages. Usually, a 9-day EMA of MACD is plotted along side to act as a trigger line. A bullish crossover occurs when MACD moves above its 9-day EMA, and a bearish crossover occurs when MACD moves below its 9-day EMA.
The histogram is positive when MACD is above its 9-day EMA and negative when MACD is below its 9-day EMA.
Interpretation
MACD is a trend following indicator, and is designed to identify trend changes. It's generally not recommended for use in ranging market conditions. Three types of trading signals are generated,
* MACD line crossing the signal line.
* MACD line crossing zero
* Divergence between price and MACD levels
The signal line crossing is the usual trading rule. This is to buy when the MACD crosses up through the signal line, or sell when it crosses down through the signal line.
When the MACD line crosses through zero on the histogram it is said that the MACD line has crossed the signal line.
The histogram can also help visualizing when the two lines are coming together.
A crossing of the MACD line up through zero is interpreted as bullish, or down through zero as bearish.
Positive divergence between MACD and price arises when price makes a new selloff low, but the MACD doesn't make a new low(i.e. it remains above where it fell to on that previous price low). This is bullish, suggesting the downtrend may be nearly over.
Negative divergence is when price makes a new rally high, but MACD doesn't rise as high as before, this is bearish.
Trading Signals
First check whether price is trending. If MACD is flat or stays close to the zero line, the market is ranging and signals are unreliable.
Go long when the MACD line crosses the signal line from below.
Go short when the MACD line crosses the signal line from above.
Signals are far stronger if there is either:
a divergence on the MACD line; or
a large swing above or below the zero line.
To Calculate MACD :-
Column | Description | Formula to enter
A = Company Name/date
B = Open
C = High
D = Low
E = LTP/close
F = Volumes
G (12DAY EMA) = first we have to calculate 12-Day Ema:
For 12 day Ema,we have to calculate 11-day Simple mov.aver(SMA).
Formula= Sum(E2:E12)/11 , enter formula in G12
In 13 row of G column we have to calculate ema
EMA formula = price today * k + EMA yesterday's * (1-k) where N is number of days in your ema
OR
X(EMA) = (K x (C - P)) + P
X = Current EMA,
C = Current Price,
P = Previous period's EMA*,
K = Smoothing constant
(*A SMA is used for first period's calculation),K = 2/(1+N),N = Number of periods for EMA
calculation
K = 2/(1+N)
12day=2/(12+1)=0.15
26day=2/(26+1)=0.074
so formula for 12day ema would be =E13*0.15+G12*(1-0.15) OR (0.15*(E13-G12))+G12, enter formula in G13, copy the formula till latest closing price.
H (26DAY EMA) = now we have to calculate 26 day ema,so u have to go thru the Mov.Aver.formula steps once again:
we have to calculate 25-day Simple mov.aver(SMA).Formula= =Sum(E2:E26)/25 enter formula in H26
so formula for 26day ema would be =E27*0.074+H26*(1-0.074) OR (0.074*(E27-H27))+H27,enter formula in H27,copy the formula till latest closing price.
I (MACD[FAST LINE])= Subtract 26-day ema from 12-day ema.so formula =H27-G27, enter in I27,copy the formula till latest closing price.
J (9-day ema[Slow Line]) = first we have to calculate 9-Day Ema of MACD(trigger/signal line)
calculate 8-day Simple mov.aver(SMA).Formula =SUM(I27:I34)/8,enter the formula in J34
then,Ema kicks in
K = 2/(1+N), so 2/(9+1)=0.2
=I35*0.2+J34*(1-0.2),enter the formula in J35,copy the formula till latest closing price.
K (MACD Histogram)= we have subtract Slow line(J34)from Fast line(I34) so formula =J34-I34,enter in K34,copy the formula till latest closing price.
Many Peoples are using this type of Technical indicators in Charting Software System, and also using other indicators like
- Moving Average Convergence Divergence (MACD)
- Bollinger Band
- Average Directional Index (ADX)
- Pivot Points
- Relative Strength Index (RSI)
- Stochastic
- Oscillator
- Parabolic Stop and Reverse (SAR)
- Fibonacci retracement
- Standard deviation
- Exponential moving average (EMA)
And Many Other Indicators are using for Intraday Trading and Positional day trading, but it was a very difficult to analyze the Market in live season duration for intraday trading because we need to add all those indicators and parameter in the charting software system and it's inuf because now time to analysis of share market or particular script in live market duration it was hard to analyse all those indicators and parameters at same time but meanwhile one of solution are there
it was BAHUBALI TRADING SOFTWARE SYSTEM it was very helpful too for intraday trading in mcx and nse market this software was a very best tool for high accuracy trade in that software there is no need to look at chart even No Need to look at new No Need to Purchase data No Need to add Multiple of Indicators and Parameters This software performance was awesome this software having mastery in MCX intraday trading this software was provide High accuracy target Level every day in that software having one more benefits is Software will provide entry and exit level with Stop loss and Reverse trend one more extra benefits is Software giveing Target Level in the morning and then after before end of the day when we see the High in Market that was same as given by the software in the morning below is the some of pictures photos of mcx Crude oil Intraday Trading software
in Above window You can see Buy Crude oil > 5018 Target 5059 and High That will be 5064
in Above Window Buy Crude oil > 2089 Target 2010 then after Market Will Touch the High That was 2111 it will happen not today and tomorrow its happen daily because new version updated of this software at every week as regularly You can Visit website Click Here
it was BAHUBALI TRADING SOFTWARE SYSTEM it was very helpful too for intraday trading in mcx and nse market this software was a very best tool for high accuracy trade in that software there is no need to look at chart even No Need to look at new No Need to Purchase data No Need to add Multiple of Indicators and Parameters This software performance was awesome this software having mastery in MCX intraday trading this software was provide High accuracy target Level every day in that software having one more benefits is Software will provide entry and exit level with Stop loss and Reverse trend one more extra benefits is Software giveing Target Level in the morning and then after before end of the day when we see the High in Market that was same as given by the software in the morning below is the some of pictures photos of mcx Crude oil Intraday Trading software
in Above window You can see Buy Crude oil > 5018 Target 5059 and High That will be 5064
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