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 Technical Analysis & Generating Trading 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 Crossovers Commodity Trading Signals:
Fast-line/Signal Line Crossover:
- A buy commodity signal is generated when the Fast line crosses above the Signal line
- A sell commodity signal is generated when the Fast line crosses below the Signal line.
However, in a strong trending market this commodity 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 commodity signal is generated.
- when the Fast-line crosses below the zero center line a sell commodity 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 commodities price movement. There two types of divergences:
- Classic Divergence Trading Signals
- Hidden Divergence Signals
Overbought/Oversold Conditions:
MACD indicator is also used to identify potential overbought-oversold conditions in commodities 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 Crossover Commodity Trading System
This commodity 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.
Technical Analysis in Commodities Trading
