Beginner Foray with Stochastic Oscillator

[tymen1]

Originally Posted by pipso facto

So you're measuring the same thing, just expressing it differently..

NO.

In the MACD, one of the MA is subtracted from the other.
The result is an entirely new line.

So if you want to cut out the lag a little, then shorten your parameters a little. If you don't like lags at all, don't use moving averages, MACD included

I now refer to the above chart.

You can see that the entry given by the MACD crossover with its signal line is much earlier than a simple crossover of the above 2 averages in pink and orange.

This is the strength of the MACD and why it is a waste of time just using 2 moving averages.
A chart/diagram says a thousand words - I cannot express it more clearly.

Finally, shortening the moving averages does not shorten the relative lag.

[pipso facto]

If you shorten the parameter on your Fast Moving Average, you can get it to cross at the same price as your MACD does.

As to my original point, the one you're not-so-cleverly attempting to ignore by showing us pretty graphics, is that the MA and MACD use the same measurements.

You seem to be agreeing with me on that point when you say that:

"In the MACD, one of the MA is subtracted from the other."

You can time your entries to take place earlier or later by changing the parameters of the MA.

But I have a feeling this isn't really about Moving Averages or MACD's is it?

[tymen1]

Originally Posted by pipso facto

If you shorten the parameter on your Fast Moving Average, you can get it to cross at the same price as your MACD does.?

To keep the comparison correct, if you shorten the short moving average, then you must also do it in the MACD.

If you are comparing a 12/26 pair then it is also 12/26 in the MACD.
If you want to shorten......say 9/19 then it is also 9/19 in the MACD.

And in that case the MACD/signal crossover is ALWAYS earlier than a pure MA cross.

So I know which one I would use in every case!!
Further the MACD is also a lagging indicator to get you in the right side of a trend......
But also a leading indicator using divergences.

As to my original point, the one you're not-so-cleverly attempting to ignore by showing us pretty graphics, is that the MA and MACD use the same measurements.

Not ignoring - it is the whole idea, they have to use the same inputs.
You need to compare apples with apples.

You seem to be agreeing with me on that point when you say that:

"In the MACD, one of the MA is subtracted from the other."

The full formula can be found in Technical Analysis from A to Z by Steven B Achelis.

You can time your entries to take place earlier or later by changing the parameters of the MA

.

By shortening the inputs, you get more whipsaws.
The best shortened version of the MACD is the Di Napoli version.

I am not sure why you want to debate this with me, pipso facto.

Firstly, I am a retired mathematics teacher, so my understanding of this indicator is very good mathematically.
I have purchased and studied Gerald Appel's book Technical Analysis, in which he tells us everything about the MACD in detail.

There is not a lot of information about the MACD on the internet or otherwise except for the basics.
When I studied the book, I was surprised to learn that there is much more to understanding how the MACD works than you will find anywhere, including this forum.

Finally, having learnt to use the MACD properly, I used it for serveral years in stocktrading before I came here to do forex.

So, yes, I know more than most about the MACD.

My point is that it is superior to any MA cross - thats why it was invented.
Try both on a demo and you will see what I mean.

This is my last post on the matter, I suggest you purchase the book yourself and learn from it - it is one of the better trading books around.
You will not be disappointed!!

[Scottish Mike]

what is the signal line ?

[tymen1]

The MACD itself is the difference between a 26 period and a 12 period exponential average.
The signal is a 9 period exponential moving average of the MACD to show buy/sell opportunities.

3 popular ways to use the MACD are.....

1) crossovers.

2) as an overbought/oversold indicator.

3) signalling an end to the current trend by use of divergences.

[Caesar95]

Greetings Tymen.

I'm interested with the shortened MACD - Di Napoli version you mention? Do you have any links to this? It would be a great help for me. Thank you

[pipso facto]

That's great Tymen. If you're interested, I programmed my own backtesting application using excel. It tests MA and S/R Systems and optimizes them to find the best parameters for the instrument you test. You can then vary your position size to get the optimal bet.
It's really worth doing the calculations yourself as it gives you a better understanding of what those pretty indicator lines actually mean. But of course, being a former teacher, I'm sure you already know that.
Happy Trading!

[tymen1]

Originally Posted by Caesar95

Greetings Tymen.

I'm interested with the shortened MACD - Di Napoli version you mention? Do you have any links to this? It would be a great help for me. Thank you

The Di Napoli MACD is standard on GFT Dealbook.

However, if you are not using that program, Gerald Appel recommends the following.......

Trend very positive - enter very fast (6/19/9), exit very slow (19/39/9)

Trend neutral to somewhat positive - enter fast (12/26/9), exit slow (19/39/9)

Trend clearly negative - enter fast (12/26/9), sell exit (12/26/9).



The Di Napoli MACD has settings....

Long - 17.5185
Short - 8.3897
signal - 9.0503

[jony 5 fingers]

I don't like any of these old indicators, ma, macd, stochs........ I don't need an extra line telling me what happened in the past.

those videos you posted, sweetpips, are the best, I've been following mike baghdady for a while now, and price behaviour is the future. I hadn't seen those vids, so thanks!

[soul786]

Originally Posted by jony 5 fingers

I don't like any of these old indicators, ma, macd, stochs........ I don't need an extra line telling me what happened in the past.

those videos you posted, sweetpips, are the best, I've been following mike baghdady for a while now, and price behaviour is the future. I hadn't seen those vids, so thanks!

Agreed. I've just started watching and the view he has are interesting. Though I beleive his methods work better for longer TFs (which isn't my preference), I beleive some of it can be adapted to other systems. Momentum is definately one major area that can be explored much further for profit.