MA Convergence/Divergence Oil Analysis & MACD Trading Signals

Created 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: the 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

Oil Analysis & Generating 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:

Oil Cross Overs Trade Signals:

Fast-line/Signal Line Crossover:

• A buy oil 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 crude trade signal is generated.
• when the Fast-line crosses below the zero center line a sell crude trade signal is generated.

Divergence Oil:

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

1. Classic Divergence Signals
2. Hidden Divergence Signals

Overbought/Oversold Conditions:

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

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

MACD & Moving Average Oil Cross Over System

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

Technical Analysis in Oil Trading