MACD

Developed by Gerald Appel,

The Moving Average Convergence/Divergence is one of the simplest, reliable, and most oftenly used indicators.

It is a momentum oscillator and also a trend-following indicator.

Construction

The construction of this indicator calculates the difference between 2 moving averages & then plots that as "Fast" line: a second "Signal" line is then calculated from the resulting "Fast" line & then drawn on the same panel window panel as "Fast" line.

• "Fast" line - Blue Line
• "Signal" line- Red Line

The "standard" MACD values for "Fast" line is a 12-period exponential moving average and a 26-period exponential moving average and a 9-period exponential moving applied to the fast line, this plots the "Signal" line.

• Fast-line = difference between 12 & 26 exponential moving averages
• Signal Line = moving average of this difference of 9-periods

Commodity Analysis & Generating Trade Signals

The MACD is commonly used as a trend-following indicator & works most effectively when analyzing trending market movements. Three common techniques of using MACD to generate signals are:

Commodities Trading Cross Overs Trade Signals:

Fast-line/Signal Line Crossover:

• A buy signal is generated when the Fast line crosses above the Signal line
• A sell signal is generated when the Fast line crosses below the Signal line.

However, in a strong trending market this signal gives a lot of whipsaws, the best cross over to use would thus be the Zero Line Crossover Signal that is less prone to whipsaws.

Zero Line Crossover Signals:

• When the Fast-line crosses above zero center-line a buy signal is generated.
• when the Fast-line crosses below the zero center line a sell signal is generated.

Divergence Commodities:

Looking for divergences between the MACD and commodities price can prove to be very effective in spotting potential reversal and/or commodity trend continuation points in price movement. There two types of divergences:

1. Classic Divergence Trading Signals
2. Hidden Divergence Signals

Overbought/Oversold Conditions:

MACD indicator is also used to identify potential overbought-oversold conditions in price action movements.

These levels are generated if the shorter MACD Lines separate dramatically from the median, this is an indication that commodities price action is over-extending & it will soon return to more realistic levels.

MACD & Moving Average Commodities Trading Cross Over Commodity Trading System

This indicator can be combined with others to form a commodities system. A good combination with the Moving Average cross-over system. A trading signal is generated when both give a signal in same direction.

Analysis in Commodities Trading