Moving Average Convergence/Divergence Commodity Trading Technical Analysis & MACD Trading Signals
Developed by Gerald Appel,
The Moving Average Convergence/Divergence is one of the simplest, reliable, & most commonly used indicators.
It is a momentum oscillator and also a trend-following indicator.
Construction
The construction of this indicator calculates the difference between two moving averages & then plots that as the 'Fast' line: a second 'Signal' line is then calculated from the resulting 'Fast' line & then drawn on the same panel window panel as the 'Fast' line.
- 'Fast' line - Blue Line
- 'Signal' line– Red Line
The 'standard' MACD values for the 'Fast' line is a 12-period exponential moving average and a 26-period exponential moving average and a 9-period exponential moving applied to the fast line, this plots the 'Signal' line.
- FastLine = difference between 12 & 26 exponential moving averages
- Signal Line = moving average of this difference of 9-periods
Commodities Trading Technical Analysis & How to Generate Trading Signals
The MACD is commonly used as a trend-following indicator and works most effectively when analyzing trending market movements. Three common techniques of using MACD to generate signals are:
Commodities Trading Crossovers Commodity Trading Signals:
FastLine/Signal-line Crossover:
- A buy signal is generated when the Fast Line crosses above the Signal-line
- A sell signal is generated when Fast-line crosses below Signal Line.
However, in a strong trending market this commodity signal gives a lot of whipsaws, the best cross-over to use would thus be the Zero Line Crossover Signal that is less prone to whipsaws.
Zero Line Crossover Trading Signals:
- When the Fast Line crosses above zero center-line a buy signal is generated.
- when the Fast-line crosses below zero center line a sell signal is generated.
Divergence Commodity Trading:
Looking for divergences between the MACD & commodity price can prove to be very effective in identifying potential reversal &/or trend continuation points in commodity price movement. There two types of divergences:
- Classic Divergence Trading Signals
- Hidden Divergence Trading Signals
Overbought/Oversold Conditions:
MACD indicator is also used to identify potential overbought-oversold conditions in commodity price action movements.
These levels are generated if the shorter MACD Lines separate dramatically from the median, this is an indication that commodity price action is over-extending & it will soon return to more realistic levels.
MACD & Moving Average Commodities Trading Crossover Commodity Trading System
This commodity technical indicator can be combined with others to form a commodities system. A good combination with the Moving Average cross-over system. A signal is generated when both give a signal in the same direction.
Technical Analysis in Commodities Trading
