V.6:8 (294-297): MACD momentum Part 1 by Thomas Aspray

V.6:8 (294-297): MACD momentum Part 1 by Thomas Aspray
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MACD momentum Part 1 by Thomas Aspray

In the fall of 1986, I completed work on a new indicator: the MACD Histogram/Momentum. As many of you are already aware, the MACD, or Convergence/Divergence, is an excellent indicator, but its signals often lag when run on weekly data. Convergence/Divergence was developed by Gerald Appel, who has created many excellent technical tools. I first presented my work on the MACD at a CompuTrac conference in 1984. At that time, very few analysts were aware of it, much less using it on the commodity markets. Now it is a widely used technical tool.

I have done some work on optimizing the MACD by testing various combinations of inputs for the three exponential moving averages. This has been discussed in previous educational articles, and, by altering the moving average variables, the results are dramatically different.

For example, the default for silver ( 12 days, 26 days and 9-period exponential average of the difference) were not always profitable, while the (10, 20, 9) combination was profitable 54% of the time, with an average profit of 67.5 points and an average loss of only 34 points.

After studying and using MACD for almost five years, I felt that, besides optimization, a method of anticipating crossovers would be to my distinct advantage. After looking at (and testing) several alternatives, I found that by running a 10-day momentum (with 3-day smoothing) of the MACD in histogram form (MACD-H), the results were quite good. For the MACD-H in these weekly charts I will use 10 and 20 days for the averages with a 10-period exponential average of the difference between the two.

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