MA Convergence/Divergence Analysis and MACD Signals
Created by Gerald Appel,
The MA Convergence/Divergence is one of the simplest, reliable, and most commonly used indicators.
It's a momentum oscillator and also a trend-following indicator.
Construction
The construction of this indicator calculates the difference between two moving averages & then plots that as the 'Fast' line: a second 'Signal' line is then calculated from the resulting 'Fast' line & then drawn on the same panel window as the 'Fast' line.
- 'Fast' line - Blue Line
- 'Signal' line - Red Line
The 'standard' MACD values for the 'Fast' line is a 12-period exponential MA and a 26-period exponential MA and a 9-period exponential moving applied to the fast line, this plots 'Signal' line.
- Fast-line = difference between 12 and 26 exponential MAs
- Signal Line = MA of this difference of 9-periods
Trading Analysis and How to Generate Signals
The MACD is oftenly used as a trend-following indicator & works most effectively when interpreting trending market movements. 3 common techniques of using MACD to generate signals are:
XAUUSD Cross-overs Gold Trade Signals:
Fast-line/Signal-line Crossover:
- A buy trading signal gets generated when Fast Line crosses above Signal Line
- A sell signal gets generated when FastLine crosses below 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's less prone to whipsaws.
Zero Line Crossover Signals:
- When the Fast Line crosses above zero center line a buy signal gets generated.
- when the FastLine crosses below zero center line a sell signal gets generated.
Divergence Trading:
Looking for divergences between the MACD and price can prove to be very effective in spotting potential reversal and/or trend continuation points in price movement. There 2 types of divergences:
- Classic Divergence Signals
- Hidden Divergence Signals
Overbought/Oversold Conditions:
MACD is also used to spot 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 price action is over-extending and it'll soon return to more realistic levels.
MACD & Moving Average XAUUSD Cross-over System
This indicator can be combined with others to form a system. A good combination with the MA cross-over system. A signal gets generated when both give a signal in the same direction.
Analysis in XAUUSD Trading
