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Top 3 Technical Tools Part 3: MACD - Video Lesson

InvestorEducation / Technical Analysis Oct 13, 2015 - 05:52 AM GMT

By: EWI

InvestorEducation

Enhance your trading confidence with this short lesson on how to combine Moving Average Convergence Divergence with other technical tools.

"Guessing or going by gut instinct won't work over the long run. If you don't have a defined trading methodology, then you don't have a way to know what constitutes a buy or sell signal. Moreover, you can't even consistently correctly identify the trend." -Jeffrey Kennedy


Jeffrey Kennedy is an accomplished teacher and a Senior Analyst here at EWI. Yet he often says that the Wave Principle alone is not a trading methodology. It does not tell you how much trading capital you can afford to risk, or specific guidance about which entry or exit levels are best suited for your trading style or where to set your protective stop.

Kennedy also says that along with risk management and emotional discipline, the right technical tools are a vitally important part of supporting your wave count.

To enhance trading confidence, Jeffrey's 3 favorite technical tools are Japanese candlesticks, RSI, and MACD. (read Part 1 on Japanese Candlesticks and Part 2 on RSI ). Today's lesson shows you how MACD can help identify trading opportunities with an example from USDCAD.

This 2-minute video and overview of MACD are adapted from Jeffrey's Trader's Classroom educational service (which empowers subscribers with information on nearly every aspect of trading).

More from Jeffrey:

Moving average convergence divergence (MACD) is a momentum indicator developed by Gerald Appel. It consists of two exponential moving averages, the MACD line and Signal line. The difference between these two lines yields an additional indicator, MACD Histogram.

Since these studies evaluate momentum, they work optimally in trending markets. When combined with reversal candlestick patterns, MACD and MACD Histogram can increase confidence in these patterns as well as continuation of the larger trend.

MACD divergence occurs when prices move one way and MACD moves the other. Bearish divergence forms when prices make new highs and MACD does not. Conversely, new price lows without lower MACD readings is bullish divergence. These conditions aid traders in identifying potential changes in momentum and trend.

MACD is constructed using two lines referred to as the MACD line and the Signal line.

When the MACD line appears to penetrate the Signal line, but fails to do so, a hook forms. The significance of a hook is that it coincides with countertrend price moves.

MACD is excellent technical tool provided you know how to use it and what to look for.


Trading Education Week

Get more trading lessons from EWI's Jeffrey Kennedy:

Announcing Trader Education Week

Join us for a FREE trading event that will teach you how to spot trading opportunities in your charts. Spend this week getting free trading lessons that you can apply to your trading immediately -- from one of the world's foremost market technicians, Jeffrey Kennedy.

Whether you are new to trading or have years of experience, you'll benefit from Jeffrey's easy-to-understand style and clear presentation. He'll cover topics such as:

  • Patterns that lead to high-confidence trade setups
  • Momentum indicators to support your pattern analysis
  • Japanese candlestick patterns that alert you to a change of trend
  • How to manage your trades using protective stops
Register now for your FREE week of trading lessons
r.asp?acn=7mo&rcn=aa562&dy=aa0101215&url=http://www.elliottwave.com/club/trader-education-week/default.aspx?articleid=3977">

This article was syndicated by Elliott Wave International and was originally published under the headline (Video Lesson) Top 3 Technical Tools Part 3: MACD. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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