MacD Question

JamesKL

Hi MarkD and ImKwin
I am reading about the MacD momentum indicator and copied below is what is printed. I don't understand The line in parenthesis that I have isolated for viewing. My question is:
Exactly which MacD is better suited for weekly charts and why: is the MACD(5,35,5) better for weekly charts or is the MACD(12,26,9) better for weekly charts and why ??

The MACD indicator is special because it brings together momentum and trend in one indicator. This unique blend of trend and momentum can be applied to daily, weekly or monthly charts. The standard setting for MACD is the difference between the 12- and 26-period EMAs. Chartists looking for more sensitivity may try a shorter short-term moving average and a longer long-term moving average.

"MACD(5,35,5) is more sensitive than MACD(12,26,9) and might be better suited for weekly charts."

Chartists looking for less sensitivity may consider lengthening the moving averages. A less sensitive MACD will still oscillate above/below zero, but the centerline crossovers and signal line crossovers will be less frequent.

markd

"Which is better" is really something you have to decide for yourself. Trading is personal.A system or method works only if you can follow it (take the losses, wait for the profits), and that's a matter of individual psychology.

One way to decide for yourself might be to a make a list of all the charts in an index - maybe the DOW 30, or the SP 100. Create a weekly chart style and add the PPO indicator twice, once with the shorter parameters, once with the longer (as @lmkwin explained, PPO is better for comparisons between stocks - read the chart school article on PPO for more detail). Omit any other indicators to keep it simple.

Then compare the entries and exits each PPO creates. Draw lines straight up from the buy/sell signal on PPO to the bar on the chart that generated the signal. Use the open of the next bar as your entry/exit. Which fits more stocks better (i.e. which gives you more/bigger profits and fewer/smaller losses) ?

I recommend doing all this work because if you go by only what you read you will never be sure - you will never be able to make your own decisions based on what you yourself know to be true. Markets change and no rule will always work. If you do your own research, you will have a better idea when to follow a rule and when to ignore it.

If you have Powerpoint its a big help in taking screen shots and printing them out, but its not absolutely necessary. Working with a printed page will help you retain what you learn (there seems to be a hand-brain connection that really helps learning).

lmkwin

The difference between the MACD and the PPO is that MACD shows the dollar or point value difference between the lines. The PPO shows the difference as a percentage of the lines.

Using the AAPL chart, the difference between the 12 and the 26 is 3.134 dollars or points. That 3.134 points is a 2.245% difference between the two. So, if you look for a MACD value of 3.134 you will probably find stocks in a similar price strata of AAPL. If you look for a PPO value of 2.245, you will get a much wider swath of prices as 2.245% difference is able to applied consistently than a 3.134 point difference.



On the default, 12 is 12 periods, 26 is 26 periods, and 9 is the moving average of the difference between the moving averages.

What is better? I'd say PPO as it's much easier to see extremes over time. It's better to use in a Rank by statement as well.

You can use MACD/PPO on the major market charts as way to see if the market is favorable or unfavorable



You can also use them on a Relative chart to see where over or under performance is happening. Note the Perf Chart lines getting closer together and then crossing.




I try to use weekly data in my scans and alerts, or convert the weekly value into daily values for use in the scans and alerts. So if I'm looking at 9 or 20 week indicators, I'll use 45 or 100 for my daily parameter.


I'm actually more partial to Point and Figure Charts which combine momentum, horizontal and trendline characteristics. Longer column lengths indicate momentum. Column exceeding prior column indicates horizontal break, etc. But the scanning capabilities on StockCharts are much more comprehensive so I can use PnF AND time based parameters in my scans. I'm partial to Low Pole patterns and Selling Climaxes for my universe.



On the MACD/PPO parameters, that last number is a moving average of the difference. If you put a 1 or a 0 in then you will get a different view of the actual difference between the 2 moving averages. A 1 will show just the K line. A 0 will display it as a histogram.



You can also add your own moving average and horizontal line via using Overlays options on the chart