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V.7:2 (56-61): Individual stocks and MACD by Thomas Aspray
V.7:2 (56-61): Individual stocks and MACD by Thomas Aspray
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Individual stocks and MACD
by Thomas Aspray
The Moving Average Convergence-Divergence method specifically MACD-Histogram (MACD-H) and MACD-Momentum (MACD-Mo) can be used to identify turning points in the commodity markets (See Stocks & Commodities, August and September 1988). MACD also is useful and valid for the cash indices as well as individual stocks. In this article, I will show you how these indicators work on individual stocks.
Calculating MACD is a straightforward matter (Figure 1). The real work is in choosing the moving average period length. I calculate MACD-H using 10-, 20- and 10-periods (day or week). The MACD-H is the histogram version of the oscillator implemented in the CompuTrac system. My new MACD-Mo is a 3-period smoothed (simple moving average) of a 10-period momentum of the MACD-H.
MACD formula
Gerald Appel, who developed MACD, originally used periods (days) of 12 and 26 days to calculate MACD and a 9-day average to get a "signal" line. These periods may be translated into approximate exponential moving average (EMA) alpha's by a = 2/(n + 1), where "n" is the number of days. Using these values to be consistent with Appel's work,12 days = 0.15, 26 days = 0.074, and 9 days = 0.2. Thus, ...
Figure 2 - NYSE Composite
In this weekly chart, the first point to concentrate on is May 1987, where both MACD-H and the MACD-Mo were negative. The MACD-Mo flattened out in late May and started rising by late June. The MACD-H bottomed in the latter part of May and then began to rise. With both lines improving in mid-June, the retest of the lows provided a buying opportunity.
The MACD-H moved into the buy mode in the first week of July, point 1, and was confirmed one week later when MACD-Mo crossed above the zero line, point 2.
The Moving Average Convergence-Divergence method specifically MACD-Histogram (MACD-H) and MACD-Momentum (MACD-Mo) can be used to identify turning points in the commodity markets (See Stocks & Commodities, August and September 1988). MACD also is useful and valid for the cash indices as well as individual stocks. In this article, I will show you how these indicators work on individual stocks.
Calculating MACD is a straightforward matter (Figure 1). The real work is in choosing the moving average period length. I calculate MACD-H using 10-, 20- and 10-periods (day or week). The MACD-H is the histogram version of the oscillator implemented in the CompuTrac system. My new MACD-Mo is a 3-period smoothed (simple moving average) of a 10-period momentum of the MACD-H.
MACD formula
Gerald Appel, who developed MACD, originally used periods (days) of 12 and 26 days to calculate MACD and a 9-day average to get a "signal" line. These periods may be translated into approximate exponential moving average (EMA) alpha's by a = 2/(n + 1), where "n" is the number of days. Using these values to be consistent with Appel's work,12 days = 0.15, 26 days = 0.074, and 9 days = 0.2. Thus, ...
Figure 2 - NYSE Composite
In this weekly chart, the first point to concentrate on is May 1987, where both MACD-H and the MACD-Mo were negative. The MACD-Mo flattened out in late May and started rising by late June. The MACD-H bottomed in the latter part of May and then began to rise. With both lines improving in mid-June, the retest of the lows provided a buying opportunity.
The MACD-H moved into the buy mode in the first week of July, point 1, and was confirmed one week later when MACD-Mo crossed above the zero line, point 2.
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