The MACD Is Overrated
I read a pretty enlightening article on the MACD today and how this indicator has been elevated to mystical status. Is this deserving? According to the author, no. The MACD is an indicator based on moving averages; that's it. "In the end, the performance of moving averages and indicators based on moving averages will always be, well, average." I personally use the MACD and I'll admit that I've been guilty of elevating this indicator to mystical status as well. I predominantly use it to identify divergence between price, but I also use it to identify momentum.
I've talked in the past about my avoidance of lagging indicators and the author of this article says that if this is the route that you want to go (I do), then here is what your toolbox should and should not be.
Your toolbox if you want to perform technical analysis in a lagging manner:
- Moving averages
- MACD
- Stochastics
- Parabolic SARs
- Bollinger Bands
Your toolbox if you want to know where price "is likely to go next… as often as 80% of the time."
- Trendlines
- Pivot Points
- Candlestick
This article presents far from revolutionary information but it goes against from the norm and states why you would be best served by using something other than the MACD. That is why I like this article. There are just so many articles on how to use the MACD to your advantage.
The author also mentions some candlestick patterns (hammer, star) that when identifying them when price is near pivot points or trend lines, can be more powerful.
Article: http://www.investopedia.com/articles/trading/06/AgainstMACD.asp
Popularity: 7% [?]
The Trend is Your Friend
I love reading technical analysis articles. I find the
information obtained absolutely useful even if you don’t incorporate it
into your trading system. With that said, there is a good article
detailing trend analysis with the Parabolic and DMI Indicators.
The author give 3 real world examples of how it might be used to
identify the underlying trend. I would definately recommend
reading it. I have added the indicators to my trading system to
see how they perform.
Popularity: 2% [?]
