Moving Averages Crossover Divergence Masterclass Part 2

3 thg 11, 2020

Moving Averages Crossover Divergence Masterclass Part 2
In the previous masterclass, we saw two different ways of using MACD as an indicator. In Part 2, we'll look out for two other ways to use MACD along with other indicators.

The two previous ways were:
1. Centreline Crossover
2. Signal-line Crossover

Moving forward the two more ways are:
3. MACD + Awesome Oscillator:
Awesome Oscillator -

• Bill William's Awesome Oscillator
  
• It is a momentum oscillator
  
• Calculated by subtracting 34-period SMA from 5-period SMA plotted through bar-midpoint (H+L/2)
  
• Clearly shows what is happening to the market driving force
  
• Bullish Scenario- Awesome Oscillator is greater than 0; If AO is moving up bullish trend is strengthening while if AO is moving down bullish trend is weakening
  
• Bearish Scenario- Awesome Oscillator is less than 0; If AO is moving down bearish trend is strengthening while if AO is moving up bearish trend is weakening
  

Awesome Oscillator defined the predominant trend while MACD Signal line crossover(as discussed in Masterclass Part 1) is used to generate the trade signal.

Thus BUY when AO >0 and MACD crosses up the signal line, while SELL when AO <0 and MACD crosses below the signal line

To prevent fake signals, a stop loss can be set-up at the low for the entry candle.

4. MACD + Stochastic:
Stochastic Indicator -

• Momentum Indicator
  
• Compares a particular closing price to a range of its prices over a certain period of time
  
• Just like MACD, it has faster and slower moving metrics
  
• Slow Stochastic Indicator (%K) = (C - L14)/(H14 - L14)*100
  
• Fast Stochastic Indicator (%D) = 3 - period moving average of %K
  
• Bullish Scenario- Stochastic Indicator < 20 i.e. oversold condition; market trading upward, prices will close near the high
  
• Bearish Scenario- Stochastic Indicator > 80 i.e. overbought condition; market trading downward, prices will close near the low
  

MACD Centerline Crossover(as discussed in Masterclass Part 1) defines the predominant trend while the Stochastic Indicator (%K) is used to generate the trade signal.

Thus BUY when MACD > 0 and Stochastic Oscillator < 20, while SELL when MACD <0 and Stochastic Oscillator >80

Trade signals can also be generated using crossovers of %K and %D for the Stochastic Oscillator.

A lot more interesting things can be done using MACD, but we'll move to the next indicator in our next Masterclass.

STAY TUNED
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- Mudrex