Moving Average Crossover (macd) Trading Tips

Using MACD to give you signals on when to trade your stock has become an important part of the traders investment strategy

. More and more investors are coming to rely on this momentum trading signal. However, there are a couple of things to consider before totally relying on MACD trading tips. The first thing to remember is that the MACD does not work reliably if the stock is trading in a range. In this case, false signals could be given. If the range is large enough, it may be better to do swing trading instead. The other thing to remember is that if something was totally infallible, we would all be millionaires. Obviously other factors should be looked at in addition to the MACD analysis.

There are several methods that a trader may use with the MACD. The first would be to trade on the divergence. Divergence will occur when the stock price is moving in a different direction than the MACD. If the stock price achieves a new high but the MACD begins to move downward, then it is time to consider that the stock price is due for a reversal. The flip side would also be true. If the stock price achieves a new low, but the MACD starts to move upward then it may be time to go long.

Trading the crossover is another way to use the momentum indicator. This is the easiest method to use. It is merely the process of watching for when the positive and negative trend lines cross over each other. The problem with this trading signal has always been that it lags behind actual events, and the trader stands to miss out on a significant portion of the price movement. The potential for false signals is also a high probability with this trading strategy. The possibility for a bad trade is extremely likely if the investor uses only this analytic process.

Trading the zero line crossover is another MACD trading tip. The trader will use this strategy by observing when the trending line moves over the zero line indicator. This occurrence will indicate that momentum has swung. Whether or not this is a good trending indicator depends on what has been happening in the market. If both the market and the MACD have been coming off of new highs, then this could be considered as a strong signal. However, if the market is only trading in a weak trend, then this may not be a viable signal to trust.

Using more than one technical analytic process may be the best method to use in establishing a trading strategy. There are other technical analysis that can be done including stochastic, volume, Bollinger Bands, moving averages, the RSI and several others. If one analytic process is good, then more than one will be better. It is always a good idea to cross check your theory with other analytic processes. Being a strong trader and being able to make money with your investment strategy will involve learning about all the methods available to analyze the trending line of a stock.

One great book to obtain if you are interested in studying about technical analysis and how it can help you is called "Technical Analysis: Power tools for active investors" by Gerald Appel. I would suggest that you review this book and perhaps some others that discuss the technical analytic processes to obtain a solid foundation for technical analysis.

by: Garth Wheeler

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