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Moving Average Convergence Divergence (MACD)

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Moving Average Convergence Divergence (MACD) Understanding Technical Analysis : Moving Average Convergence Divergence (MACD) Apart from candlestick chart pattern indicators, traders or analysts often use the Hi 74.57 Moving Average Convergence Divergence (MACD) and Relative Strength Index Potential supply (RSI) in technical analysis of financial security. Like the candlestickdisruption chart indicators, due to MACD is also used to identify any trend pattern movement. attacks on two oil Brent tankers near Iran What is MACD? WTI Momentum • MACD is a momentum oscillator indicator WTI Oscillator which is used to identify trend formation Lo 2,237.40 (24 Mar 2020) • MACD shows a relationship betweenLo 18,591.93 two (24 Mar 2020) Moving moving averages of a financial instrument. • It combines price points of an instrument over Averages a specified time frame, divided by the number of data points, to give a single trend line Simple Moving Average (SMA) Exponential Moving Average (EMA) • The most basic MA, which is just a • A type of moving average that gives straight calculation of the mean price more weight to recent prices which of a set of values over a given time involves three steps. periods. • The SMA is computed first. Next, we • If you were to calculate the SMA for a must calculate the multiplier for ten-day period, you would take the weighting the EMA. The final step summed value of the last ten days involves the use of formula to and divide the result by ten. compute the current EMA. Level 6, Kenanga Tower, 237 Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia. Tel: (603) 2172 3888 Fax: (603) 2172 2729 Email: [email protected] Website: www.kenangafutures.com.my How MACD works? MACD is generated by subtracting the long term EMAs (26 period) from the short term EMAs (12 periods) to form the main line known as MACD line. This MACD line will eventually be used to create another line known as the signal line. 1 2 1 MACD Line Formula : 12 day EMA - 26 day EMA Function : Determine the upward or downward momentum Signal Line 2 Formula : 9 days EMA of MACD line Function : Act as the benchmark line to indicate the change of price direction How to read MACD? MACD is a momentum oscillator indicator which is used to identify trend formation. As MACD shows a relationship between two moving averages, any trading signal or indication from MACD usually observed through two techniques, MACD crossover or MACD divergence. MACD Crossover MACD can be read when the two lines cross over each other Bullish Crossover Signal Line When the MACD line crosses above the signal line, it triggers a bullish signal and shows a signal for traders to buy the financial instrument. MACD Line MACD Line Bearish Crossover When the MACD line crosses below the signal line, it Signal Line triggers a bearish signal and shows a signal for traders to sell the financial instrument. Level 6, Kenanga Tower, 237 Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia. Tel: (603) 2172 3888 Fax: (603) 2172 2729 Email: [email protected] Website: www.kenangafutures.com.my MACD Divergence Divergence is when the MACD line forms highs or lows that diverge from the corresponding high and low of the financial instrument's price. In other words, divergence occurs when the MACD lines contradict with the price movement of the financial instruments. Bullish Divergence A bullish divergence occurs when the MACD line forms a low followed by a higher low to indicate the upward momentum. At the same time, the price of the financial instrument forms a low followed by a lower low. Bullish momentum ensued Price recorded an initial low Price then proceeded to record a lower low The first low on MACD line MACD line then formed a higher low Level 6, Kenanga Tower, 237 Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia. Tel: (603) 2172 3888 Fax: (603) 2172 2729 Email: [email protected] Website: www.kenangafutures.com.my Bearish Divergence A bearish divergence occurs when the MACD forms a high followed by a lower high to indicate the downward momentum. At the same time, the price of the financial instrument is forms a high followed by a higher high. Price recorded a PricePrice subsequent recordedrecorded an higher high initiala high high Bearish momentum ensued MACD initially MACD then formed formed a high lower high KENANGA FUTURES SDN BHD (353603-X) Level 6, Kenanga Tower, 237 Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia. Tel: (603) 2172 3888 Fax: (603) 2172 2729 Email: [email protected] Website: www.kenangafutures.com.my Disclaimer: This document has been prepared solely for the use of the recipient. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means without the prior written permission from Kenanga Futures Sdn Bhd. Although care has been taken to ensure the accuracy of the information contained herein, Kenanga Futures Sdn Bhd does not warrant or represent expressly or impliedly as to the accuracy or completeness of the information. This information does not constitute financial or trading advice; neither does it make any recommendation regarding product(s) mentioned herein. Kenanga Futures Sdn Bhd does not accept any liability for any trading and financial decisions of the reader or third party on the basis of this information. All applicable laws, rules, and regulations, from local and foreign authorities, must be adhered to when accessing and trading on the respective markets. .
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