The MACD is a popular trend following momentum indicator that
uses 26 period, 12 period and 9 period exponential moving averages in its
calculation. Even though it is classed as a momentum indicator, the MACD also
displays oscillator qualities (achieved by plotting the difference between two
moving averages). These traits, and since its construction is quite simple, make
it one of the most reliable indicators around. That said, as with all
indicators, MACD is not infallible and should be used in conjunction with other
technical analysis tools.
CALCULATION
The primary MACD line plots the difference between a 26
period exponential moving average and a 12 period exponential moving average.
Consequently the MACD oscillates around zero, without any upper or lower limits.
Another line is added to the MACD for interpretation purposes and is called the
signal or trigger line. The signal line is a 9 period exponential moving average
of the MACD itself. Naturally, the signal line lags slightly behind the MACD.
There are 3 common methods to interpret the MACD:
1) Crossovers  When the MACD crosses above the slower
trigger line, this is a bullish signal. Vice versa when the MACD falls below the
signal line, it is a signal to sell.
2) Divergence  When the security diverges from the MACD it
warns that the current trend may have come to an end.
3) Centreline Crossover  Some analysts choose to buy or sell
when the MACD goes above or below zero (the centreline).
SYNTAX MACD()
Metastock does not allow the user to alter the moving
averages from 12 and 26 using the default MACD indicator. If you want to use
different moving averages in the MACD, you will have to create your own MACD
indicator using The Indicator Builder. Fortunately, in The Indicator Builder
Chapter, we will show you how.
Also note that there is no MetaStock function that represents
the signal line. If we wish to use the signal line, we can simply use the
formula below to obtain a 9 period exponential moving average of the MACD.
Mov(MACD(),9,E)
EXAMPLE
The following formula searches for the MACD to be positive:
MACD()>0
APPLICATION
A more useful application of this example could be:
MACD()>Ref(MACD(),1) AND MACD()>Mov(MACD(),9,E)
The formula above specifies that the present MACD value must
be greater than the previous MACD value, i.e. a rising MACD (denoted by `MACD()>Ref(MACD(),1)')
and that the present MACD must be greater than the signal line (denoted by `MACD()>Mov(MACD(),9,E)').
Looking at Figure 3.25, we can see the MACD indicator and the
signal line at the base of the chart.
Figure 3.25 _ MACD Indicator
EXERCISES
Construct formulas for the following:
1. The MACD is positive, however the previous MACD value
was negative:
__________________________________________________
2. The MACD has crossed the signal line:
__________________________________________________
This
article is a snippet from the
MetaStock Programming Study Guide...
"Discover
The Simple Secret to Make Metastock Easy & Identify Profitable
Trades"

copyright 2007 www.metaformula.com