MACD
Created by Gerald Appel,
The Moving Average Convergence/Divergence is one of the simplest, reliable, & most oftenly used indicators.
It is a momentum oscillator and also a trend-following indicator.
Construction
The construction of this indicator calculates the difference between 2 moving averages and then plots that as 'Fast' line: the second 'Signal' line is then calculated from the resulting 'Fast' line & then drawn on the same panel window panel as 'Fast' line.
- 'Fast' line - Blue Line
- 'Signal' line– Red Line
The 'standard' MACD values for 'Fast' line is a 12-period exponential moving average and a 26-period exponential moving average and a 9-period exponential moving applied to the fast line, this plots the 'Signal' line.
- FastLine = difference between 12 and 26 exponential moving averages
- Signal-line = moving average of this difference of 9-periods
Oil Trading Technical Analysis & How to Generate Trading Signals
The MACD is commonly used as a trend-following indicator & works most effectively when analyzing trending market movements. The three common techniques of using MACD to generate signals are:
Oil Trading Crossovers Crude Oil Trading Signals:
FastLine/Signal Line Crossover:
- A buy oil signal is generated when the Fast line crosses above the Signal line
- A sell oil signal is generated when the Fast line crosses below the Signal line.
However, in a strong trending market this oil signal gives a lot of whipsaws, the best cross over to use would thus be the Zero Line Crossover Signal that's less prone to whipsaws.
Zero Line Crossover Trading Signals:
- When the Fast-line crosses above zero center-line a buy oil signal is generated.
- when the Fast-line crosses below zero center line a sell oil signal is generated.
Divergence Oil Trading:
Looking for divergences between the MACD & crude oil price can prove to be very effective in spotting potential reversal &/or oil trend continuation points in crude oil price movement. There two types of divergences:
- Classic Divergence Signals
- Hidden Divergence Trading Signals
Overbought/Oversold Conditions:
MACD indicator is also used to spot potential overbought-oversold conditions in oil price action movements.
These levels are generated if the shorter MACD Lines separate dramatically from the median, this is an indication that crude oil price action is over-extending & it will soon return to more realistic levels.
MACD and Moving Average Crude Oil Trading Crossover Oil Trading System
This technical indicator can be combined with others to form a trading system. A good combination with the Moving Average cross-over system. A signal is generated when both give a signal in the same direction.
Technical Analysis in Crude Oil Trading
