What is the MACD indicator, how to use it?

Smoothing Moving Average Convergence and Divergence (MACD) indicator, generally expressed as MACD, the full name of the English Moving AverageConvergence and Divergence. this technical indicator since its invention in 1979, gradually by the stock and futures market investors, especially investors prefer technical analysis of investors welcome, it is generally believed that it can give better buy and sell It is widely recognized that it can give better buy and sell signals.

The basic principle of MACD is to borrow the short- and medium-term fast and slow moving averages to separate and converge, coupled with double smoothing, to identify the position of the market and the timing and signals to buy and sell. It is actually a comparison between the averages.

In terms of the characteristics of moving averages, in a really sustained uptrend or downtrend, the distance between the fast (short-term) moving averages and the slow (long-term) moving averages is bound to grow further and further apart (the DIF gets bigger and bigger). When the uptrend is weak, the distance between the two will become smaller and smaller (DIF decreases), or even cross each other, which becomes an important sell signal. However, simple moving averages often give false signals, especially in the case of bullish consolidation, when the buy and sell signals are often contradictory, making it very difficult to judge the market.

Calculation

DIF=EMA (N1, CLOSE)-EMA (N2, CLOSE) N1 is 12, N2 is 26;

DEA=EMA (N3, DIF) N3 is 9;

MACD=2*(DIF-DEA)

Rules of Use

1. ．When both DIF and DEA are above the 0 line, the trend is long.

2. DIF and DEA are below the 0 line, the general trend is a short market.

3. If the movement of the stock price and the movement of DIF, DEA divergence, it means that the stock market may turn.

4. MACD greater than 0 for the long market; the opposite for the short market.

A few problems should be noted in practice

1. MACD rise, does not mean that the market is going well. MACD reflects the distance between DIF and DEA, and does not directly represent the shape of the average, so when the MACD rose when the market is still likely to be in a one-sided decline.

2. Only DIF intuitively reflects the shape of the averages, DEA and MACD only analyze DIF. This is the main reason why MACD is more sensitive than SMA.

3. MACD does not reflect the long-term trend. It is customary to think of MACD as reflecting a longer-term trend, but in fact it is calculated based on the difference between two short-term averages (26, 12), which by itself does not reflect the overall trend. Of course, we can change the cycle and other methods to strengthen the grasp of the overall trend.

4. MACD should not be used in a single cycle. This is the conclusion from point 3, MACD in a single cycle can not grasp the long-term trend, will give traders a lot of risk, so in practice should try to use it in a multi-cycle environment.

MACD is one of the most profitable traditional indicators. However, it still does not meet the needs of the real world (around -10% gain in the last 500 days) In the next section we describe ways to improve the MACD.