Moving Average Convergence/Divergence Oil Technical Analysis and 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 Technical Analysis & Generating Crude 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:
Oil Trading Crossovers Oil Trading Signals:
Fast-line/Signal Line Crossover:
- A buy oil signal is generated when the Fast line crosses above the Signal line
- A sell oil signal is generated when the Fast line crosses below the Signal line.
However, in a strong trending market this oil 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 oil trade signal is generated.
- when the Fast-line crosses below the zero center line a sell crude oil trade signal is generated.
Divergence Oil:
Looking for divergences between the MACD and crude oil price can prove to be very effective in spotting potential reversal and/or oil trend continuation points in crude oil price movement. There two types of divergences:
- Classic Divergence Signals
- Hidden Divergence Signals
Overbought/Oversold Conditions:
MACD indicator is also used to spot potential overbought-oversold conditions in crude oil price action movements.
These levels are generated if the shorter MACD Lines separate dramatically from the median, this is an indication that crude oil price action is over-extending and it will soon return to more realistic levels.
MACD & Moving Average Crude Trading Crossover Oil Trading System
This oil 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 Crude Trading
