The MACD indicator is a very important technical indicator, which is often used by traders to judge the intensity of the change, the direction change, the energy change, and even the periodic change of the trend, and is considered to be the king of thousands of indicators.
1.What is the MACD indicator?
The MACD indicator, whose full name is called Smoothing Similarities and Differences, is composed of five parts: long-term DEA, short-term DIFF, red energy column (long), and green energy column (bearish axis (long-short dividing line).
diff is the black line in the chart, which is obtained after a series of calculations on the *** price; dea is the blue line in the graph, which is further calculated on the basis of the diff; Subtract the blue line (dea) from the black line (diff) and multiply it by 2 to get the bar, which is the red and green bars in the figure, if the value is greater than 0, it is red, if the value is less than 0, it is green, and the length of the bar is the size of the absolute value of the MACD.
2.Some applications of MACD indicators.
When it comes to the MACD indicator, the first reaction of most traders may be the "golden cross" and "death cross", which is the use of short-term **diff and long-term**DEA crossover as a signal, "golden cross buy, death cross sell" This is the simplest and most common use technique of MACD.
Theoretically, in a continuous rally, the positive dispersion (+dif) between the fast moving flat** and the slow moving flat** will become larger and larger; Conversely, in a downtrend, the dispersion may become negative (-dif), and the absolute value will become larger and larger, and when ** begins to improve, the positive and negative dispersion will narrow. This will entangle the black (diff) and blue (dea) lines and constantly cross each other, and these intersections can be used as a signal to ** and sell. In addition, the red and green bars are used as auxiliary indicators to determine the timing of buying and selling by using the contraction of the bar bar.
MACD indicators are arranged by bulls and bears.
Long arrangement: The green column representing the bears has changed from ** to rising, and the green column has changed from long to short, indicating that the momentum of short has begun to weaken, and the bulls have the opportunity to take advantage of the void. After that, the green column turns red, and the red column keeps rising and getting taller and longer. During this period, the DIFF line turned upward from a long-term downward trend under the 0 axis, and then crossed its ** or DEA line shortly thereafter, and the two lines maintained an overall upward trend. The MACD bullish alignment means that the bulls go all out** and achieve significant results, which is one of the signals to be bullish and long. This is shown in the figure below.
Bearish arrangement: The red column representing the bulls has changed from rising to **, and the red column has changed from long to short, indicating that the momentum of the long side is weakening, and the bears will also have the opportunity to take advantage of the void. After that, the red column turns green, and the green column keeps getting higher and longer downward. During this period, the diff line turned downward on the axis from a long-term upward to a downward trend, and soon broke its **dea line, and then the two lines maintained an overall downward trend. MACD bearish alignment means that the bears are going all out** and achieving significant results, which is one of the signals of bearish shorting.
The golden cross and death cross of the MACD indicator.
The diff line is the difference between the two ** trends, which turn from downward to turning, indicating that the strength of the bears is weakening, and the bulls have the opportunity to reverse the **. In order to avoid unexpected situations, the DEA line is added for noise filtering, and most of the cases where the DIFF line does not successfully cross the DEA line cannot be reversed well***
However, if the DIFF line successfully crosses the DEA line, a golden cross is formed, which means that the weakening of the bears' strength is not an accidental event and is credible. Therefore, the bulls began to counterattack, so that the ** continued to be positive, promoting the formation of an upward trend.
The death cross is exactly the opposite of the golden cross, the diff line is on the DEA line, and it turns from up to down, falling below the DEA line. The DIFF line turns downward, indicating that the strength of the bears is increasing, and there are fewer and fewer investors who are bullish and long, while there are more and more people who are bearish and short, forming a wave of selling.
Divergence of the MACD.
The MACD indicator does not move in the same direction as the chart of the ** chart, which forms a divergence.
Top divergence: When the trend is higher than the wave, the trend is always higher, and the red column trend in the MACD indicator chart is indeed wave lower than the wave. It means that although ** has hit a new high, the MACD momentum has not reached a new high. This situation is called top divergence, which indicates that the strength of the process is insufficient, the outside is strong and the middle is dry, and there will soon be a wave of ** in the future, which is a strong ** signal.
As shown in the chart below, when the ** trend continues to go up, while the peak of the MACD column keeps going down, the top divergence phenomenon occurs. This means that this wave is coming to an end.
Bottom divergence: When the trend is lower than the wave, the wave has been the wave, and the wave in the MACD chart is higher than the wave, it means that although the MACD has hit a new low, the MACD momentum has not hit a new low, which is called a bottom divergence.
As shown in the figure below, when the trend goes down, but the peak of the MACD column continues to move upward, there is a bottom divergence, which means that this wave is about to bottom.
3.Features of the MACD indicator.
Trending. The short-term index, which reflects the average trend of the short-term index, can be used to describe the short-term trend. If it is continuous, it will continue to move upwards and form a clear upward trend. The long-term index **, which reflects the trend of the longer period of time, although not as sensitive as the short-term **, but its role is greater than that of the short-term**, which can capture the larger and longer **, and can also filter out some frequent fluctuations, so that the overall trend can be continued.
diff is a calculated value on the basis of short-term and long-term. This line represents whether the short-term cost has been raised or decreased. Elevating means that the momentum to go long is continuing, and it is suitable to be bullish and long; On the contrary, it is suitable for shorting.
In order to optimize the diff again, the n-day ** of the diff is added, that is, the dea line, so that the direction of the overall trend can be judged by the overall trend of the diff and dea lines.
Stability. Since MACD is calculated exponentially, it is smoother than simple arithmetic average, and it is better to filter out accidental or sudden factors. In addition, it is averaged exponentially, which makes the whole indicator appear more stable and reliable.
Lag. There are pros and cons, and the problem of MACD indicators also appears in the lag of **, which is almost a common problem of all ** algorithm indicators, stability and sensitivity are irreconcilable contradictions. Sensitive but unstable in the short term, stable but insensitive in the long term.