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If you use MACD in your trading system and if you read the attached article carefully,then you will come to know some wonderful features perhaps hitherto unknown to you.
As explained there, MACD combines the best of the both world, trend following characteristic of MAs and Oscilator characteristics of identifying overbought and oversold conditions. Each security, index has its own overbought and oversold levels in MACD. In Nifty (spot),on Thursday itself MACD has entered oversold zone signaling a potential buy on Friday. Friday Dubai factor hit the market very hard and Nifty further slipped below -40 levels pushing it to very deep oversold zone thereby creating a MACD divergence. As mentioned in the article "that (MACD) help indicate whether a security is overbought or oversold and that help pinpoint potential divergences".
Divergence can be seen in the attached chart and as expected, the divergence was completed and the market started moving upwards. A BUY signal was triggered around 4845 (in line with our Balaji's call) and there was no looking back. (It was an intraday call for me. Monday will be a different story).
Another important feature about MACD the article points out is, we can easily verify whether MACD cross over will be a genuine one or a false signal. Plot 12, 26 SMA (or whatever you use in the MACD). During MACD/signal line cross over, if the SMAs on price chart expand, MACD signal is valid. If SMAs also cross the MACD signal is not valid and the price will continue to move in the direction of SMAs in the chart.
Hope this nice article helps enhance your knowledge about MACD.
Jayakrishnan.
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The real contest is always between what you've done and what you're capable of doing.
You measure yourself against yourself and nobody else.
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