MACD :
Back Ground:
Developed by Gerald Appel in the late seventies, the Moving Average Convergence/Divergence oscillator (MACD) is one of the simplest and most effective momentum indicators available. The MACD turns two trend-following indicators, moving averages, into a momentum oscillator by subtracting the longer moving average from the shorter moving average. As a result, the MACD offers the best of both worlds: trend following and momentum. The MACD fluctuates above and below the zero line as the moving averages converge, cross and diverge. Traders can look for signal line crossovers, centerline crossovers and divergences to generate signals. Because the MACD is unbounded, it is not particularly useful for identifying overbought and oversold levels.
My Analysis: (brief) :
It seems MACD was designed for Long term Trading.
It seems it works well on a long term time frame..provided we look into stocks which are not range bound..
But for Intraday, it may be a bit hazy to use it alone. I think it is difficult to use it for time frames 5 minutes and less...
On 5 minutes and above time frames it can be utlised..but we cannot purely depend on it..
Because it is a Momentum indicator...it may change momentum up or down before a stock actually turns in that direction. So for Shorter time frame traders...then it depends on other factors what action he wants to take..exit from trade or remain in Trade..
But having said that...if also forshadows that trend may reverse based on above implication (as the momentum is not going with Price..)
But usually the above is applicable for a stock that is in trend...for a Stock that is in Range..i am assuming with my limited knowledge..that it is difficlut to Use MACD alone..or for that sake difficult to use any indicator..the Risk ir more than Reward in Whipsaws...
Also i see that MACD Crossovers are very good points of activity..as many people are watching it..(it is just EMA crossovers)..so it is a good decision point...usually what is feel/see it if the momentum is at a good angle (around 45 degrees) and MACD crossovers happens..it gives a good decision to ENTER trade...also see the impact of it after it cross the 0 line...
I want fellow traders to also comment as they have seen all aspects of MACD..and how useful it is.
I usually Trade on a 1 min / 2 min/ 5 min Time Frame..and would like inputs from Traderji... if MACD can be utilised better there....
