An MACD Parallax View by Edward Donie
Fundamental to technical analysis are indicators and signals, such as moving averages. Here are situations where variations of these indicators are helpful in decision-making for traders.
Fundamental to technical analysis are indicators, among which are the simple moving average (Sma), exponential moving average (Ema), and the moving average convergence/divergence (Macd). There are situations in which variations of indicators are helpful in decision-making for traders. Day-to-day prices change with volatility, responding to the news and data of the day. Because of this, day-to-day movements do not provide insight into price trends.
SIMPLE MOVING AVERAGE
The simple moving average (SMA) is one of the most common technical indicators. In application it is the sum of the closing prices over a specific number of days divided by the number of days. For example, a 12-day moving average is the sum of the closing prices of the last 12 trading days divided by 12. As each day passes, the oldest closing price is dropped and the latest is added. At the end of each trading day, the 12-day Sma is the sum of the closing prices of the 12 most recent trading days divided by 12. The SMA can be used for any number of days. The Sma is the basis for the development of many other indicators and signals.
EXPONENTIAL MOVING AVERAGE
Another moving average is the exponential moving average (Ema). The Ema takes a fraction of yesterday’s average and combines it with a fraction of today’s close. The fractions are normally expressed as percentages and the two must add up to 100% (Figure 1).