RSI – How Do You Do

Sometimes, review is a good thing. Thus, I pulled this from my vast archives of writing because it speaks to a volatile market (it pertains to equity as well as forex trading), much like the one we now are in, again …

Another week in the market is now under our belt.  Although, I can’t complain, as things have been going my way, I can say that I hope the economy stabilizes sooner rather than later, which I guess puts me in the company of, oh, just about everyone else in America.  Be that as it may, I do have the question below to answer, and so I will …

I am new in forex the field.  I learned that if RSI is above 70 than I should sell, and if it is below 30 than I should buy.  Mostly, though, the RSI seem to remain in the 40, 50, 60 range most of the time.  What should I do at these points?

The first thing I will tell you is that one indicator does not a trade make.  If you are relying just on RSI (Relative Strength Index), then you are making a mistake.  

Generally, indicators work in combination with other indicators to both find and confirm potential trades.  Thus, the RSI only has meaningful value when compared with other indicators, if you ask me, and you did.

Second, even if you rely solely on the RSI, or if you do use it in combination with other indicators, the 70/30, buy/sell “rule” is not a rule at all; it is a guide.  

Generally, when in the 70 range, a market is considered “overbought.”  When in the 30 range, a market is considered “oversold.”  But even though the readings may be such, you should consider other factors in the RSI, such as the timing of the move into either the 70 or 30 range, how long the indicator has remained within either range, and the general volatility of the market itself during the trading time you are viewing.  Outside of the RSI, in my opinion, two of the best indicators to use in combination with the RSI are MACD (Moving Average Convergence Divergence) and Stochastic.  Both indicators give information on momentum, which allows you to compare with what the RSI is telling you (See the chart below.).  

Source: VantagePoint Intermarket Analysis Software

Note how all three indicators are telling almost the same story – the market has enjoyed certain stability and a bit of an upturn.  The RSI, however, suggests that that the “run” may be over.  The other indicators, although not as definite as the RSI, suggest the same.

As to the notion that in forex, the RSI seems to be in the middles ranges most of the time, I really don’t have much to say to that, other than you just might need to spend a lot more time watching the charts.  Where the RSI goes is wholly dependent on the price action of the market, and in these days of high volatility, I would think the forex markets would spend at least as much time in the 70/30 range as they spend in the middle range.  As to what you should do when the RSI is in the middle range … Well, I guess that just depends on your strategy.  You do have a strategy, right?

Trade in the day; invest in your life …

Trader Ed  

 

Daily Analytical Charts for Gold, Silver and Platinum and Palladium

Understanding the charts:

Due to popular demand, we have added Palladium to the list of Analytical Charts that Metals Analyst Jim Wyckoff features.

Sharpening Your Trading Skills: Using Bollinger Bands

The Bollinger Bands (B-Bands) technical study was created by John Bollinger, the president of Bollinger Capital Management Inc., based in Manhattan Beach, California. Bollinger is well respected in the futures and equities industries.

Traders generally use B-Bands to determine overbought and oversold zones, to confirm divergences between prices and other technical indicators, and to project price targets. The wider the B-bands on a chart, the greater the market volatility; the narrower the bands, the less market volatility.

B-Bands are lines plotted on a chart at an interval around a moving average. They consist of a moving average and two standard deviations charted as one line above and one line below the moving average. The line above is two standard deviations added to the moving average. The line below is two standard deviations subtracted from the moving average.

Some traders use B-Bands in conjunction with another indicator, such as the Relative Strength Index (RSI). If the market price touches the upper B-band and the RSI does not confirm the upward move (i.e. there is divergence between the indicators), a sell signal is generated. If the indicator confirms the upward move, no sell signal is generated, and in fact, a buy signal may be indicated.

If the price touches the lower B-band and the RSI does not confirm the downward move, a buy signal is generated. If the indicator confirms the downward move, no buy signal is generated, and in fact, a sell signal may be indicated.

Another strategy uses the Bollinger Bands without another indicator. In this approach, a chart top occurring above the upper band followed by a top below the upper band generates a sell signal. Likewise, a chart bottom occurring below the lower band followed by a bottom above the lower band generates a buy signal.

B-Bands also help determine overbought and oversold markets. When prices move closer to the upper band, the market is becoming overbought, and as the prices move closer to the lower band, the market is becoming oversold.

Importantly, the market’s price momentum should also be taken into account. When a market enters an overbought or oversold area, it may become even more so before it reverses. You should always look for evidence of price weakening or strengthening before anticipating a market reversal.

Bollinger Bands can be applied to any type of chart, although this indicator works best with daily and weekly charts. When applied to a weekly chart, the Bands carry more significance for long-term market changes. John Bollinger says periods of less than 10 days do not work well for B-Bands. He says that the optimal period is 20 or 21 days.

Like most computer-generated technical indicators, I use B-Bands as mostly an indicator of overbought and oversold conditions, or for divergence--but not as a specific generator of buy and sell signals for my trading opportunities. It's just one more "secondary" trading tool, as opposed to my "primary" trading tools that include chart patterns and trend lines and fundamental analysis.

Sharpening Your Trading Skills: The MACD Indicator

The Moving Average Convergence Divergence (MACD) indicator has the past few years become one of the more popular computer-generated technical indicators.

The MACD, developed by Gerald Appel, is both a trend follower and a market momentum indicator (an oscillator). The MACD is the difference between a fast exponential moving average and a slow exponential moving average. An exponential moving average is a weighted moving average that usually assigns a greater weight to more recent price action.

The name “Moving Average Convergence Divergence” originated from the fact that the fast exponential moving average is continually converging toward or diverging away from the slow exponential moving average. A third, dotted exponential moving average of the MACD (the "trigger" or the signal line) is then plotted on top of the MACD.

Parameters:

Mov1: The time period for the first exponential moving average. The default value is usually 12, referring to 12 bars of whatever timeframe plotted on the chart. (This is the fast moving average.)

Mov2: The time period for the subtracted exponential moving average. The default value is usually 26, referring to 26 bars. (This is the slow moving average.)

Trigger: The period of 9 bars for the signal line representing an additional exponential moving average.

(Note: For a graphic example of the MACD indicator, send me an email at jim@jimwyckoff.com and I will email you back with the picture example.)

The MACD study can be interpreted like any other trend-following analysis: One line crossing another indicates either a buy or sell signal. When the MACD crosses above the signal line, an uptrend may be starting, suggesting a buy. Conversely, the crossing below the signal line may indicate a downtrend and a sell signal. The crossover signals are more reliable when applied to weekly charts, though this indicator may be applied to daily charts for short-term trading.

The MACD can signal overbought and oversold trends, if analyzed as an oscillator that fluctuates above and below a zero line. The market is oversold (buy signal) when both lines are below zero, and it is overbought (sell signal) when the two lines are above the zero line.

The MACD can also help identify divergences between the indicator and price activity, which may signal trend reversals or trend losing momentum. A bearish divergence occurs when the MACD is making new lows while prices fail to reach new lows. This can be an early signal of a downtrend losing momentum. A bullish divergence occurs when the MACD is making new highs while prices fail to reach new highs. Both of these signals are most serious when they occur at relatively overbought/oversold levels. Weekly charts are more reliable than daily for divergence analysis with the MACD indicator.

For more details on the MACD, Appel has a book in print, entitled: "The Moving Average Convergence-Divergence Trading Method."

As with most other computer-generated technical indicators, the MACD is a "secondary" indicator in my trading toolbox. It is not as important as my "primary" technical indicators, such as trend lines, chart gaps, chart patterns and fundamental analysis. I use the MACD to help me confirm signals that my primary indicators may be sending.

That's it for now. Next time, we'll examine another important topic on your road to increased trading success.

Sharpening Your Trading Skills: Moving Averages

I take a “toolbox” approach to analyzing and trading markets. The more technical and analytical tools I have in my trading toolbox at my disposal, the better my chances for success in trading. One of my favorite "secondary" trading tools is moving averages. First, let me give you an explanation of moving averages, and then I’ll tell you how I use them.

Moving averages are one of the most commonly used technical tools. In a simple moving average, the mathematical median of the underlying price is calculated over an observation period. Prices (usually closing prices) over this period are added and then divided by the total number of time periods. Every day of the observation period is given the same weighting in simple moving averages. Some moving averages give greater weight to more recent prices in the observation period. These are called exponential or weighted moving averages. In this educational feature, I’ll only discuss simple moving averages.

The length of time (the number of bars) calculated in a moving average is very important. Moving averages with shorter time periods normally fluctuate and are likely to give more trading signals. Slower moving averages use longer time periods and display a smoother moving average. The slower averages, however, may be too slow to enable you to establish a long or short position effectively.

Moving averages follow the trend while smoothing the price movement. The simple moving average is most commonly combined with other simple moving averages to indicate buy and sell signals. Some traders use three moving averages. Their lengths typically consist of short, intermediate, and long-term moving averages. A commonly used system in futures trading is 4-, 9-, and 18-period moving averages. Keep in mind a time interval may be ticks, minutes, days, weeks, or even months. Typically, moving averages are used in the shorter time periods, and not on the longer-term weekly and monthly bar charts.

The normal moving average “crossover” buy/sell signals are as follows: A buy signal is produced when the shorter-term average crosses from below to above the longer-term average. Conversely, a sell signal is issued when the shorter-term average crosses from above to below the longer-term average.

Another trading approach is to use closing prices with the moving averages. When the closing price is above the moving average, maintain a long position. If the closing price falls below the moving average, liquidate any long position and establish a short position.

Here is the important caveat about using moving averages when trading futures markets: They do not work well in choppy or non-trending markets. You can develop a severe case of whiplash using moving averages in choppy, sideways markets. Conversely, in trending markets, moving averages can work very well.

In futures markets, my favorite moving averages are the 9- and 18-day. I have also used the 4-, 9- and 18-day moving averages on occasion.

When looking at a daily bar chart, you can plot different moving averages (provided you have the proper charting software) and immediately see if they have worked well at providing buy and sell signals during the past few months of price history on the chart.

I said I like the 9-day and 18-day moving averages for futures markets. For individual stocks, I have used (and other successful veterans have told me they use) the 100-day moving average to determine if a stock is bullish or bearish. If the stock is above the 100-day moving average, it is bullish. If the stock is below the 100-day moving average, it is bearish. I also use the 100-day moving average to gauge the health of stock index futures markets.

One more bit of sage advice: A veteran market watcher told me the “commodity funds” (the big trading funds that many times seem to dominate futures market trading) follow the 40-day moving average very closely--especially in the grain futures. Thus, if you see a market that is getting ready to cross above or below the 40-day moving average, it just may be that the funds could become more active.

I said earlier that simple moving averages are a "secondary" tool in my trading toolbox. My primary (most important) tools are basic chart patterns, trend lines and fundamental analysis.

Sharpening Your Trading Skills: The Relative Strength Index (RSI)

One of the more popular computer-generated technical indicators is the Relative Strength Index (RSI) oscillator. (An oscillator, defined in market terms, is a technical study that attempts to measure market price momentum—such as a market being overbought or oversold.)

I’ll define and briefly discuss the RSI, and then I’ll tell you how I use it in my market analysis and trading decisions.

The Relative Strength Index (RSI ) is a J. Welles Wilder, Jr. trading tool. The main purpose of the study is to measure the market's strength or weakness. A high RSI, above 70, suggests an overbought or weakening bull market. Conversely, a low RSI, below 30, implies an oversold market or dying bear market. While you can use the RSI as an overbought and oversold indicator, it works best when a failure swing occurs between the RSI and market prices. For example, the market makes new highs after a bull market setback, but the RSI fails to exceed its previous highs.

Another use of the RSI is divergence. Market prices continue to move higher/lower while the RSI fails to move higher/lower during the same time period. Divergence may occur in a few trading intervals, but true divergence usually requires a lengthy time frame, perhaps as much as 20 to 60 trading intervals.

Selling when the RSI is above 70 or buying when the RSI is below 30 can be an expensive trading system. A move to those levels is a signal that market conditions are ripe for a market top or bottom. But it does not, in itself, indicate a top or a bottom. A failure swing or divergence accompanies the best trading signals.

The RSI exhibits chart formations as well. Common bar chart formations readily appear on the RSI study. They are trendlines, head and shoulders, and double tops and bottoms. In addition, the study can highlight support and resistance zones.

How I employ the RSI

As you just read above, some traders use these oscillators to generate buy and sell signals in markets-—and even as an overall trading system. However, I treat the RSI as just one trading tool in my trading toolbox. I use it in certain situations, but only as a “secondary” tool. I tend to use most computer-generated technical indicators as secondary tools when I am analyzing a market or considering a trade. My “primary” trading tools include chart patterns, fundamental analysis and trend lines.

Oscillators tend not to work well in markets that are in a strong trend. They can show a market at either an overbought or oversold reading, while the market continues to trend strongly. Another example of oscillators not working well is when a market trades into the upper boundary of a congestion area on the chart and then breaks out on the upside of the congestion area. At that point, it’s likely that an oscillator such as the RSI would show the market as being overbought and possibly generate a sell signal—when in fact, the market is just beginning to show its real upside power.

I do look at oscillators when a market has been in a decent trend for a period of time, but not an overly strong trend. I can pretty much tell by looking at a bar chart if a market is “extended” (overbought or oversold), but will employ the RSI to confirm my thinking. I also like to look at the oscillators when a market has been in a longer-term downtrend. If the readings are extreme-—say a reading of 10 or below on the RSI-—that is a good signal the market is well oversold and could be due for at least an upside correction. However, I still would not use an oscillator, under this circumstance, to enter a long-side trade in straight futures, as that would be trying to bottom-pick.

Oscillators are not perfect and are certainly not the “Holy Grail” that some traders continually seek. However, the RSI is a useful tool to employ under certain market conditions.

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Thank Jim and Kitco News. I backup here.

Pivot Point Trading 101

By Jeff Friedman

Pivot-trading has been around a long time, and is a favorite technical analysis tool for many professional traders. Learning how to use pivot points helps take the emotion out of trading, and gives you discipline. Pivots are useful in not only helping you to determine price direction, but also as a money management tool. You can apply the concepts to virtually any market, but I think the pivot methodology works particularly well in stock indexes, particularly the S&P and E-mini S&P 500 index futures.

The E-mini S&P is priced right for smaller investors, the volume is superb, and fills are nearly instantaneous. And, CME Group’s Globex platform offers trading nearly around the clock. So I’m going to use this market in my examples of how to apply the pivot methodology to real market conditions. But first, some background to understand what pivots are, and how they can be used as part of technical analysis.

Pure market technicians believe all the factors related to supply and demand are reflected in a market’s price, and therefore they don’t concern themselves with fundamental analysis. Technical analysis is the study of price and price behavior using charts and various other tools to help determine market trends, and to predict where prices could be headed next.

Chart patterns can be ambiguous and subject to interpretation, but pivots are not. They are defined price points. They tell me that when the market moves above a determined number I should be bullish, and when it moves below another determined number I should be bearish. And, if I’m already long (or short) because the market moved above (or below) one of my pivots, they can help me determine where to place my stops and exit my trades. Pivots also take volatility into account to show momentum.

Calculating Pivots
The traditional formula for calculating pivot points incorporates three data points: the previous day’s high, low and close. You can use other datasets and/or time frames to find what gives you a unique edge. Some traders like to use the open in their calculation. I like to calculate both weekly and daily pivot numbers, which can be used for swing trading or day trading. No matter which numbers you use, the value of using pivots is to tell you whether the market is pivoting to a higher-level value, or to a lower-level value. Pivot points also take volatility into account to show momentum. Do they always work perfectly? No. But will they give you guidance? Absolutely.

To calculate basic daily pivot points, you will add the high, low and close of the previous trading day, and divide by three. You want to do this before the market opens for the session you wish to trade, so you will have your levels and be ready. The first support (S1) is two times the pivot minus the high, while first resistance is two times the pivot minus the low. To find second support, take the difference between the high and low, then subtract that number from the pivot. Second resistance is the difference between the high and the low, added to the pivot.

Pivot Point = (H + L + C) / 3
1st Support = (2 x Pivot) - H
1st Resistance = (2 x Pivot) - L
2nd Support = Pivot – (H – L)
2nd Resistance= Pivot + (H – L)

As mentioned, there are also other variations of this basic analysis. Some traders will incorporate the opening of the next day, adding to the high, low and close of the prior day, and then dividing by four. Some traders believe the opening is more important than the prior day’s close, so they use the high and low of the prior day, and the new opening the next day divided by three. These traders probably wouldn’t trade during the first few minutes of the session as they calculate their pivots based on the current day’s open.

You might be asking yourself, which session do you I use in my calculations? Do you use the overnight session, or day session, or both combined? It’s really up to you to find a method that might give you an edge. I prefer the classic calculation using the regular day session, and use the opening range (roughly first hour of trade) as a separate pivot point by itself, as a breakout level.

Support and Resistance
There are two ways of using pivots. The core technique is based on support and resistance. We can use other technical indicators, such as moving averages, to support this analysis and help provide confirmation. The idea is to sell when prices violate support levels in a break and buy when prices push through resistance on the upside.

Support and resistance are key points to watch in chart patterns. Support occurs when increased demand for a particular futures market builds a floor under that market’s price. A support level or zone appears when buyers miss purchasing a futures contract and vow to buy it later should prices decline to the same, or nearly the same, level. Resistance occurs when selling pressure stops a market’s price rise. A resistance level is similar to a support level in that traders who buy the futures con¬tract just before it tumbles vow to sell if its price rallies back to their purchase price. In bull markets, old resistance often becomes future support and in bear markets, old support becomes new resistance.

Finding first and second resistance (R1 and R2) and first and second support (S1 and S2) can help you predict how far prices might climb and how far they might fall. These levels can also provide key stop-loss levels, a vital risk-management tool.

Look at support and resistance as floors and ceilings of a building. If you can break through the floor of the second story, you’ll fall through the ceiling of the first story, and probably land on the floor, now one story lower. Resistance numbers are always higher than your pivot, and your pivot is always higher than your support numbers. You can use these numbers without ever even looking at a chart.

Trading the Pivot
Pivot points can also be considered critical junctures in markets. If the market is flip-flopping around a pivot number, the market is trying to decide if that pivot is valid, and to what extent. The fact that so many traders watch these pivot numbers means they can be a self-fulfilling prophesy. If everyone believes some certain number is support, and the market starts to rise, they will think, “I need to buy.”

More day traders use pivot trading than swing traders, but the approach can be used successfully for either trading time horizon. If daily and weekly pivot numbers line up, they have an even stronger impact. You could even take the last three daily or weekly pivots and divide by three to get an average pivot.

Let’s take a look at how we calculate and use pivots to trade the E-mini S&P. First, let’s consider the weekly pivots for the week of February 1 – 2, 2010. We are using data from the prior trading week to calculate our pivot, support and resistance points as follows.

S&P 500 Weekly Pivots, February 1 - 5
High 1,103.30 Low 1,066.70 Close 1,070.40
R1 = 1,093.57 R2 = 1,116.73
Weekly Pivot = 1,080.13
S1 = 1,056.97 S2 = 1,043.53

If the market moved under my weekly pivot that would be bearish, and if the market moved above it, that would be bullish on a weekly basis. Even if the market falls under our pivot at 1,080, if you are a longer-term trader you might want to wait to sell until if falls under our S1 of 1,056. Short-term traders who got long at 1,082 on Monday would’ve caught a nice move higher that day, which was extended with another bullish session on Tuesday.

S&P 500 Daily Pivots, February 1
High 1,093 Low 1,066.70 Close 1,070.40
R1 = 1,086.70 R2 = 1,103.00
Daily Pivot 1,076.70
S1 = 1,060.40 S2 = 1,050.40

When the market rallied above our pivot on February 1, you would have considered buying. S1 The high on Monday was 1,086, close to our R1 at 1,086.70, and also where the market closed. That would be a good place to consider taking profits.

Playing the pivots can help you uncover opportunities, but this technique will not always work perfectly every day or week. However, pivots can be effective money management tools in volatile sessions, as you use your support and resistance points as levels to get you out of the market as need be, before heavier losses mount. Remember, you don’t have to be right 100 percent of the time to be a successful trader. Use your pivots to employ proper money management, and to find trades with attractive risk-reward profiles. Never risk more than you can afford to lose, or hope to make!

I welcome you to give me a call to discuss this technique in further detail, or to answer any other questions you have about the markets.

Jeff Friedman is a Senior Market Strategist with Lind Plus. He can be reached at 866-231-7811 or via email at jfriedman@lind-waldock.com. You can follow Jeff on Twitter at www.twitter.com/LWJFriedman. Join Jeff for his monthly webinar, Friedman’s Futures Forecast, by visiting Lind-Waldock’s events page. You can view an archived webinar of this forecast at www.lind-waldock.com/events, where Jeff covers even more detail.

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Paksu : Here are resistance, pivot dan support on 5 Feb 2010 from Hafeez Blog

Resistance 3: 1130.80
Resistance 2: 1111.05
Resistance 1: 1098.85

Pivot : 1079.00

Support 1: 1059.35
Support 2: 1047.15
Support 3: 1027.45

Introduction to MACD

by Dennis Cajigas

Moving Average Convergence/Divergence, otherwise known as MACD, was created by Gerald Appel in the 1960s as a way to analyze market momentum and strength. While it fell out of favor in the early 1980s, it experienced a resurgence of popularity with the development of the MACD histogram by Thomas Aspey in 1986. The histogram provided a way to anticipate crossovers in the MACD, providing another method of analysis that gave the MACD a renewed sense of relevance. Traders often use the histogram as a tool to anticipate trend and momentum shifts.

One of the most useful things about the MACD is that it allows traders the ability to identify market trend changes and strength of momentum in a single indicator. It is particularly popular among currency traders.

The MACD represents the difference between two (fast and slow) weighted moving averages of closing prices. The 12-day moving average is commonly used to represent the fast, while the 26-day moving average, the slow. A trigger line, or signal line, is created by smoothing the result with another weighted moving average. Most commonly, the 9-day is used. This creates a centered momentum oscillator, which visually indicates shifts in trend or changes in momentum.

Common Pitfalls
The MACD is a powerful and useful indicator, but it is a lagging indicator. Often there may be a delay between a signal in the MACD and price movement. The MACD may be used in all market condition types, but it is most useful in volatile markets when trend changes more frequently.

Traders should be careful not to mix signals when forming their trade strategies. For example, when entering a momentum-based trade, the exit strategy should be on a momentum indicator rather than a price, time or profit target.

Four Types of Signals

1. Moving Average Crossover. This occurs when the two moving averages (fast and slow) cross. It indicates a potential shift in trend; essentially more buying (or selling) is coming into the market. It is the most common type of signal, but should be reinforced with another type of signal as it can occur fairly often. A three-bar confirmation in the price action or in the MACD histogram can provide a confirmation signal.

In the chart examples that follow, you’ll see two red and blue lines at the bottom, representing the two moving average time periods (fast and slow). The histogram in the middle has a line running through the center, which creates a trigger or signal line.

The histogram visually shows the difference between the moving averages. It also smoothes out fluctuations. I’m using a candlestick chart, with down days designated by red candles and up days by green.

Let’s look at a daily chart of the U.S. dollar in 2009 as an example. In the lower part of the screen, there is a moving average crossover of the12-day and 26-day moving averages, represented by the tan circle. We see the shift in price reflected in the corresponding tan circle in the candlestick chart, as the market starts to decline. There is another crossover as the trend shifts to the positive side in the next set of light blue circles farther to the right of the chart, as buying comes into the market. You see the reflection of the price move in the MACD, and we have continued rallies going forward.

Chart 1, Moving Average Crossover

2. Centerline Crossover. This occurs when the MACD moves past the zero line and moves into the opposite territory. That is, going from positive to negative, or negative to positive. It can be combined with other types of indicators to confirm the signal. Traders will often also monitor the slope of the histogram or the two indicator lines to reveal increasing strength or weakness of the market momentum. How quickly is it moving, and how fast and strong?

In the next chart, we see the centerline crossover and the shift from negative to positive. The bars are steadily and slowly increasing, which shows more buying coming in, and increased positive momentum (represented by the beige ellipses). Notice the extreme slope on the histogram and the corresponding gaps in price action on the chart. A bit of a bullish pennant formation is seen in the price chart.

The purple bars (histograms) move below the zero line and then above as price rises (tan circles). We then see a negative crossover to the right on the chart. As the length of the histogram increases, the slope increases and we see that in bearish price action (indicated by the light blue circles).

3. Positive/Negative Divergence. This occurs when the strength or weakness of the MACD differs from the relative price action of the market. It is the least common of all the MACD signals, but is often the most reliable of the MACD signals, indicating a major trend shift.

On Chart 3, we see a high occur, and then a lower high on the MACD histogram, indicating weakening or exhausting buying pressure. The MACD is telling us the rally we are seeing is a weak one (see the orange line at top right). Afterward, we see a drop in price reinforced by the drop in the MACD and MACD histogram. The market’s bottom should be indicated by a drop in momentum.

Chart 3, Positive/Negative Divergence

4. Multiple Indicator Signal. If you have one indicator producing a signal, you might want to reinforce it. As the MACD crossover goes from bearish to bullish in Chart 4, it is reinforced later by a centerline crossover. We thus have two signals combining to reinforce the trade. We see an increasing histogram, indicating increasing bullish momentum entering into the market, and price action confirms the bullish shift. Within the light blue ellipses, we see multiple indicators. The MACD crossover gives indications of a possible shift, and the centerline crossover indicates increasing momentum.

Chart 4, Multiple Indicator Signal

Looking at a more current chart of the U.S. dollar in early 2010, the blue ellipse represents a positive (bullish) moving average crossover and it is reinforced by a positive centerline crossover. These bullish MACD signals are reflecting the shift in price action and you can see market trend change indicated by the blue ellipse on the price chart.

The beige rectangle is overlain on another positive moving average crossover and the MACD signaled a momentum shift within an already established trend. The MACD signal indicated a rally extension (micro-trend change) as opposed to a major trend shift.

U.S. Dollar Index, Early 2010

This is just a brief introduction to MACD, and I encourage you to do further research and to contact me with questions on how you might apply these techniques to your market analysis. I find the MACD to be useful for all markets to determine momentum and trend shifts.

Dennis G. Cajigas is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at (866) 631-6216 or by email at dcajigas@lind-waldock.com.

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Paksu : A lot of thing we should learn but this is the best tool for me to monitor gold price.