Understanding the MACD Indicator

[Justin]

Provided by Clearstation

After getting an initial impression of which direction a stock is trending you should always study the MACD (Moving Average Convergence-Divergence) graph. The MACD graph (second graph from the top) has a fast line (the red one) and a slow signal (the blue line). The crossing of the red line over the blue can denote the beginning of a trend. The uptrend typically stops when the blue line crosses above the red. Where the crossover happens tells you whether there is a trend and how strong it is. When the red fast line crosses over the blue line at or above the centerline (which serves as a constant at a zero value), the stock is trending hard - a definite candidate for a long position! The higher above the centerline it crosses, the stronger the uptrend is. If the crossover occurs below the centerline, the uptrend indicated is not nearly as strong. Let's take a look at this graph. This stock started an uptrend in mid-July. Pretty evident from the price graph, don't you think? Check out the light-grey bars over the price graph. Now look at the MACD graph (second graph from the top). See how, each time the red line crosses over the blue, a light grey bar is born over the price graph? See how the price goes steadily up when this happens? (The light-grey bar disappears when blue prevails over red.) Did you notice where the centerline on the MACD graph (0.0) is in relation to the crossovers? Each time the two lines cross higher above the centerline, the uptrend gain more momentum, and the price rises with more intensity. To stress it again, the easiest way to make money is by latching onto a stock that is trending big time. In less than two months, you could have nearly doubled your investment. That is the power of MACD.

[jerryc]

phil mentioned that because MSN does not have a 30 day MA but only a 10 & 50, you must extrapolate a 30 from them. do you have any idea how to do that on the MSN site? i only use that site presently and am looking for help here.

[Justin]

I do not but I saw a comment somewhere that you can use www.stockcharts.com to do this? I'm not sure let us know how that works out.

[AlexG]

i personally like the 50 MA theres less getting in and out of stocks = less comissions paid

[howlsgirlfriend]

Hey, speak of the devil, Phil posted about this on his blog today:

http://philtown.typepad.com/phil_tow..._extrapol.html

[TheCrack]

Justin,
The chart Screen shot you provided above, where is that from?
I like the look of that chart....

Thanks....

[Justin]

Clearstation: http://clearstation.etrade.com/

[Xyvern]

Originally Posted by Justin

Clearstation: ClearStation : Welcome to ClearStation!

Justin,
That's a great site, going to spend some time tomorrow to lean how to read chart.

[Xyvern]

Justin,
I have a question regarding chart reading. I was using the chart from Stockcharts.com which allows you to set your own indicator. When you sellect MACD there are two lines display on the graph, black and red lines. I know what the black line represents but not sure what the red was. Also comparing to the charts from Clearstation and Stockcharts.con which one do you prefer ?

[Gunnski]

You are looking for the faster line to crossover the slower line in an upward manner. When the faster lines crosses in a downward manner, it is negative.

Try looking at a EMA 50 & EMA 13. Try looking at some charts with that set up. You will see some clear relationships to how the stock is responding. Also its relationship with Stochastics & MACD. Have fun.