Experiments in Technical Analysis

[karthikmarar]

Hi Friends

Continuing with the "Trading the MACD" discussion

Finally it always good to look at the volume while looking at the MACD. Combing Volume with MACD helps us to get onto some really good moves. There could be many ways to combine this. One could just use a simple moving average of the volume or look at some volume-based indicator. OBV indicator with a 30 day moving average of the same does work as a good confirmatory Indicator.

We can also derive a MACD with a volume bias. There are many ways to do that. I will not go into the details of these here. I will provide a simple example here.

Create a new variable V= sum(C*V)n / sum (V)n

Now create a MACD of this variable with n=12 and n=26.

I will leave the experimentation to you. Just enclosing the chart of this volume biased MACD with the normal MACD

Next we will conclude thus discussion with a brief look on the Pros and Cons of MACD.

Regards

Karthik

 

[asnavale]

Hi Friends

Continuing with the "Trading the MACD" discussion

...........................................

We can also derive a MACD with a volume bias. There are many ways to do that. I will not go into the details of these here. I will provide a simple example here.

Create a new variable V= sum(C*V)n / sum (V)n

Now create a MACD of this variable with n=12 and n=26.

I will leave the experimentation to you. Just enclosing the chart of this volume biased MACD with the normal MACD

Next we will conclude thus discussion with a brief look on the Pros and Cons of MACD.

Regards

Karthik

Hi Karthik,

The line in RED above has a variable V on the LHS. But V is used for Volume on RHS (V is a reserved symbol). Shouldn't we use some other identifier for the new variable? Such as 'var' or 'newvar' or some such thing?

Regards

-Anant

 

[uasish]

Hi Karthik,

The line in RED above has a variable V on the LHS. But V is used for Volume on RHS (V is a reserved symbol). Shouldn't we use some other identifier for the new variable? Such as 'var' or 'newvar' or some such thing?

Regards

-Anant

Anant,
Var is also a reserved symbol in MS.

Asish

 

[karthikmarar]

Ananth, asish

Nice to know you guys go through these posts seriously

True, V is a reserved letter. Please do change it to something like CV (not creditviolet ... close volume biased... )

regards

Karthik

 

[karthikmarar]

Re: Experiments in Technical Analysis - Trading the MACD

Friends,

Now it is time to conclude this discussion on trading the MACD. Before that we will just look at the pros and cons of the MACD.

MACD-PROS

MACD can be a trend following as well as a momentum Indicator. Since we are using two moving averages it makes a good trend following Indicator. As a momentum Indicator it captures the underlying momentum and that is the reason divergences are very effective in case of MACD. Divergence forewarns the traders of the impending weakness and reversals. MACD can be used on any time frame effectively. MACD is one of the most widely followed Indicators and that makes it self-fulfilling and effective.

MACD- CONS

Since MACD is based on moving averages the inherent qualities of lag and whipsaws are also reflected in the MACD. MACD as a momentum Indicator does not work well as a indicator of over bought and oversold levels.

END NOTE

MACD used properly can be one of the simplest and rewarding tool for the Technical Analyst. However it does have drawbacks and combining it with other Indicators makes it very effective.

One can try the MACD with different combination of the moving averages instead of the standard 12, 26. Many people use a shorter period for example 8,17,9 for Buy and longer ones 12,26,9 for sell.

Also one can experiment with MACD of other types of moving averages like weighted Moving averages, Adaptive moving averages like KAMA, VIDYA, and MAMA etc.

I hope this discussion was useful especially to the newbie.

Happy Experimenting

Warm regards

Karthik

 

[karthikmarar]

Friends,

And for those who would like to keep a copy of the Trading the MACD discussion a pdf version is avaliable for download at

http://www.4shared.com/dir/1136409/6d28c7e6/sharing.html

Regards

karthik

 

[jchshee]

Tq very much Karthik, we are very lucky to have a Technical Expert like you sharing your thoughts and programming skills with us!! Now we have more knowledge to reduce our losses and hopefully, to gain more!!

 

[asnavale]

Anant,
Var is also a reserved symbol in MS.

Asish

Hi Asish,

I am not familiar with MS coding. So I suggested 'var'. As Karthik suggested we can write something else which wouldn't conflict with reserved words.

Thanks and Regards

-Anant

 

[mfire]

Thank you very much for such elaborative & nice work for us. I always feel that this thread has given me a way to look at the technical analysis.
Mohan

 

[Roshanna]

hi karthik can u post ur charts with white background?
i have B/W printer.
cheers