OptionPundit

Category: Trading Systems

  • How To Find and Trade MACD Divergence

    How do you find MACD Divergence trading Ideas like COST that resulted into quick gains? This post will explain process of finding divergence play without paying hefty sums for datafeeds or premium charting tools. All it needs is a FREE stock screener, a FREE stock charting service and a few skills to read charts. Before I begin, I am assuming that you already know “What is a MACD Divergence?”

    The next step is all about the following 1, 2, 3:

    1. Finding and selecting appropriate underlying vehicles,
    2. Structuring and Placing the trade (Before placing a trade it is, however, important to know whether overall market is in uptrend or downtrend. If your strategy is in sync with overall market direction, chances of your success will increase dramatically) and
    3. Exiting the trade.

    Let’s move on to the first step i.e. To find suitable underlying. You can use, any FREE stock screener of your liking, I prefer FinViz and here are my criteria for the search- (more…)

  • Don’t Simply Ignore this Divergence

    Over past 2-3 decades, Stock Market Technical analysis has developed into a full professional career. And if one is willing to learn and master it, there are certified programs like Chartered Market Technicians or popularly known as CMT. Some traders live by it day-in-day-out, while others think that charts are nothing but randomly distributed events plotted on X-Y Axis. This post isn’t about converting non-believer into believers of Technical Analysis, but to shed some lights on an age old technical indicator that, for me, has been quite effective; and also to share a trading idea.

    According to Investopedia, MACD (Moving Average Convergence Divergence), a common technical indicator, calculates the difference between an instrument’s 26-day and 12-day exponential moving averages (EMA). Of the two moving averages that make up MACD, the 12-day EMA, is obviously the faster one, while the 26-day is slower. In the calculation of their values, both moving averages use the closing prices of whatever period is measured. On the MACD chart, a nine-day EMA of MACD itself is plotted as well, and it acts as a trigger for buy and sell decisions. MACD generates a bullish signal when it moves above its own nine-day EMA, and it sends a sell sign when it moves below its nine-day EMA.

    MACD is quite a popular technical indicator and is usually amongst the first set of technical indicators that one uses to begin his/ her “technical” trading. You’ll find that almost every technical trader has used it at one time or the other. Many experts change number of days in the formula, based on what suits their trading style.

    One of the popular way of using MACD is trading with the divergences. However, according to Investopedia, the divergence trade is not very accurate – it fails more than it succeeds. I have a different perspective.

    (more…)