FXstreet.com Live Sessions Archives

How to incorporate MACD into your trading strategy

Date: December 7, 2005 15:00GMT 10EST

Expert: John S. Alesia, President and founder of Brown forex

Topics:
- What is the MACD?
- Moving Average Crossover
- Divergence
- Center Line Crossover
- MACD Histogram
- Combining MACD Signals

Who is John S. Alesia?
John S. Alesia founded Brown Forex after a successful career on Wall Street. Recognizing an opportunity to capitalize on an untapped retail trading market, Mr. Alesia left an executive post with Deutsche Bank to start Brown Forex. Leveraging his years of capital markets experience with hedge funds, investment banks, and institutional money managers enables Mr. Alesia to provide sage guidance and powerful resources to the retail trader.

Speech Material:

What is the MACD?
The Moving Average Convergence Divergence(MACD) is a trend follwing momentum indicator. It also does a good job of finding a reversal in trends. The MACD shows the relationship between two exponential moving averages. The most commonly used EMA's for the MACD are the 12,26,9. The MACD line is calculated by subtracting the 12 EMA from the 26 EMA with the 9 EMA used as a signal line. In addition to the moving average lines a histogram is also plotted with the MACD showing the difference between the MACD and the 9 EMA.

Moving Average Crossover
The most simple way to use the MACD is to look for a crossover of the moving averages. When the MACD line crosses to the upside of the 9 EMA that is a bullish signal, conversely when the MACD line crosses to the downside of the 9 EMA that is a sell signal.

Here is an example of both

(MACD Crossover pic)

Click to enlarge:


Here we can see the simple MACD crossover working well om a 1 hour EUR/USD chart. We get both buy and sell signals followed by decent trends to lock in profits. Using this type of signal soley will have you constantly in trades and is not very good in a whippy market. It is best if you use other indicators in combination with the MACD crossover for a better signal.

Divergence
A divergence occurs when the price moves in one direction and the MACD goes in another. This usually signals an end to a trend and a sign we will be reversing soon. This is one of my favourite indicators when looking for a slow down in a trend.

Here is an example

(MACD Divergence pic)

Click to enlarge:

 
We see that as price continued to move up the MACD was moving the opposite way. This was followed by a turn in price to the downside to follow the MACD.

Center Line Crossover
Another signal used by MACD analysts is the crossover of the center line or zero line. A bullish signal is created when the MACD moves from negative to positive and conversely a sell signal occurs when the MACD moves from positive to negative.

Here is an example

(MACD Center Crossover Pic)

Click to enlarge:

 
As you can see on this USDCHF Daily Chart, we can get many signals on these center crosses. The signal tends to be lagging and should be used as a confirmation of another signal.

MACD Histogram
The MACD histogram is the differnce between the MACD and the signal line. The histogram starts at the zero line and is pointed up when the MACD is greater than the signal line. Conversely it is pointed down when the MACD is below the signal line. We can look to the histogram for possible divergence as well as looking for peaks and troughs.

Here is an example

(MACD Histogram Pic)

Click to enlarge:

As we see on the USD/JPY Daily chart firstly and examble of divergence using the histogram. We see the histogram start to move toward the positive as the price is decreasing. This is a sign the price momentum is slowing and a possible reversal is about to occur. We also see a new low hit on the histogram chart. This is an oversold signal and a sign when the MACD crosses the signal line to the upside that momentum has come to an end and the chart has turned bullish.

Combining MACD Signals
I touched briefly on combining the signals above. Specifically in the Histogram example we see that when we hit a low on the histogram chart the following crossover confirmed we were at a low and gave us a bullish signal. This is a good example of combining indicators. I do not use the MACD crossovers exclusively. To do so would give you far too many signals and many false signals. But when used in conjuction with the divergence or the histogram we can get some stronger signals which will lead to more profits and less losses. My favorite indicator is using the MACD, looking for bullish and bearish divergence. When I see what appears to be a divergence I need to get a confirmation of that. I use the crossover of the MACD and the signal line to confirm that I am correct. Sometimes we may think we have divergence only to find the MACD continue to rise and create a new high as price is creating a new high. Like anything else patience is needed and signals must be waited for. Getting in premature does not give you a good place to exit. If I enter on a crossover I will look to exit if I get a reversal and the MACD crosses back.

Forex Forecast: End 4Q and 2006

Date: December 1st 2005 15:00GMT
Expert: Bernardo A. Martinez Garza, Founding director of Nexum Capital Markets

FOREX FORECAST end 4Q and 2006
-Interest rate differential
-USD strength/weakness
-Bernanke as new Economic Leader

Who is Bernardo A. Martinez Garza?
Bernardo A. Martinez Garza is the founding director of NEXUM CAPITAL MARKETS in Mexico, founded in 2005 for clients services that wish to learn how to trade FOREX and become themselves into mature and expert traders, by the hand with our company, we help all our clients to know and learn every different angle into the market and how to take advantage to the maximum power of all opportunities the markets brings us. As a Financial Consulting Manager in Latin America, our company started off in 1995, with the sole objective to give over 35% annual profits to all our clients, no matter how big or small they might be, basing their principals to their higher standard, mostly into FOREX Markets. As owner of a National Restaurant Franchise as well, Bernardo Martinez has a wide vision and knows where the market will be following the economic fundamentals, as well as the general consumer public, opportunity areas, and growth potential, as well as possible changes in monetary policy.

FOREX FORECAST end 4Q and 2006

We have had a great deal of phone calls and emails since a couple of weeks ago now, asking about certain questions they would like answered… so we decided to formulate a complete Q&A session for your sake and ours!  Some of the questions we have received are about NASDAQ, Mexican stocks, Japanese stocks, etc.  we have seen new records for NIKKEI(Japan), IPC(Mexico), as well as others.  We have also presence an incredible strength by USD against mayor currencies like EURO, GBP, CHF, JPY, etc.  and have presences as well a strong weakness against CAD and MXP.

For this special report at the beginning of Dec, we would like to begin stating that even though we cannot attribute these effects to one single macro-microeconomic effect.  One of the principal things we have considered, variables that push such financial markets to new records since 2 years ago… for Mexican peso, Canadian dollar, Japanese yen, USD, etc. is the following:

Day to day we live in a world that enjoys incredible cash flow, what makes our world a more susceptible investment world.  People with enough cash flow and little to left to buy, tends to invest in whatever market they find in the first hand, this is one of the reasons a bubble is growing inside our financial markets and one more reason why stocks will fall and currencies will keep simply rising and moving with great volatility.  These people who before hand had little or none possibilities of investment, have absolutely NO CLUE where to invest, and invest wherever they find it more comfortable to… another reason why currencies in 2006 will take great advantage and make lots of profits yet once more.  Our recommendation is as follows:

DO NOT WAIT UNTIL THIS APPARENT BUBBLE BURSTS, BEFORE TAKING IN THE PROFITS, MAINTAIN A DAILY CARE TO YOUR STOCKS AND INVESTMENTS, EITHER IN YOUR OWN COUNTRY AS IN THE OUTSIDERS, KEEP MOST OF YOUR PORTFOLIO DIVERSIFIED OVER INVESTMENTS IN IMMEDATE LIQUIDATION (SHORT TERM).
MAINTAIN VARIBLE INVESTMENTS AT SHORT TERM PROFITS (currencies, short term bonds) and STAY AWAY FROM LONG TERM INVESTMENTS WITH FIXED PROFITS (outside stocks, 5 and 10 year bonds

POSITIVES:

September NET FLOWS $51.1bln

Stock US buys by foreign buyers raised 540% to $24.5bln

US residents shopping decreased 56%, to $7bln only.

Treasury bonds maintain record levels, China and UK being 3% and 5% respectively to $252bln & $182bln respectively.

Non official interest (banks) for Us treasury bonds (private flow) consignated more than $21.7bln in foreign inflow.

NEGATIVES:

Record deficit over $66bln

Foreign central banks are primary sellers for Us bonds, arriving to $1.1bln in Sept., after only achieving 13% and 11% net flows for July and Aug respectively.

Foreign bond buying by US residents has increased 153% towards $9.1bln.  we estimate this is due to the fact that USD has been increasing its value considerably, in which US residents have now more power with its dollars and have begun buying other countries stocks, taking day by day essential money USA need to control inflation, currency momentum, and interest rate differential stable.

I will now give my personal outlook for most popular currencies in the near future.