Review: Generating Profit with a MACD based Trading System
Rating: 5 out of 5
Date: 05 23, 2014
Moving Average Convergence/Divergence was developed by Gerald Appel in the late 70’s.  It is one of the most popular technical indicators in trading.  The MACD is appreciated by traders the world over for its simplicity and flexibility because it can be used either as a trend or momentum indicator.  The concept behind the MACD is fairly straightforward. Essentially, it calculates the difference between an instrument's 26-day and 12-day exponential moving averages (EMA). Of the two moving averages that make up the MACD, the 12-day EMA is obviously the faster one, while the 26-day is slower. In the calculation of their values, both moving averages use the closing prices of whatever period is measured. On the MACD chart, a nine-day EMA of the MACD itself is plotted as well, and it acts as a trigger for buy and sell decisions.  The MACD histogram is the main reason why so many traders rely on this indicator to measure momentum, because it responds to the speed of price movement. Most traders use the MACD indicator more frequently to determine the strength of the price move than to find the direction of a trend.Trading is hardly ever black and white. Some rules that traders agree on, such as never adding to a loser, can be successfully broken to make a profit. But, a method for out maneuvering money management rules needs to be established before attempting to capture gains. In the case of the MACD histogram, trading the indicator instead of the price offers a new way to trade an old idea - divergence. Applying this method to the FX market, which allows effortless scaling up of positions, makes this idea even more intriguing to day traders and position traders alike.The concept of MACD/Divergence Trading is not an easy one to understand especially for beginners, but, Wilhelm writes in such a way as to make it easier.  A good read for serious traders!