lystn

Hey everyone, Kirk here again and welcome back to the daily call. Today, we are going to be answering the question, “Does the moving average convergence divergence or commonly referred to as MACD indicator actually work?” Now, I can tell you, we have done extensive testing on this indicator and for the most part, it is not a useful indicator. That's the golden nugget that you get out of today. You can obviously check out our research on technical analysis by heading over to optionalpha.com/signals. But the whole premise behind moving average or MACD indicator actually makes a lot of sense and what it really is trying to do is trying to look at the generalities between or the predictability of shorter term moving indicators as opposed to longer term. Say a 9-day moving indicator versus a 12 or a 26. And so, if the shorter term moving indicator is moving up and starts to cross over a longer term, that might be bullish or if the reverse happens, the shorter term indicator or moving average is moving down, maybe a short term momentum is coming out of the security, crosses underneath the longer term, then that might be bearish. What we have found in testing though is that those indications and those signals of moves actually just happened too late. By the time that it actually occurs, the move is already done and maybe actually is starting to move the other direction. Now, you could say that there's probably a little bit of inference that can be left here into divergence. Divergence is a big part of I guess technical analysis, just looking at the divergence and signals, the signals are starting to come together, but maybe they didn’t cross yet or there’s a big spread in these moving averages and that may signal that as getting overstretched. I do think there are some truth to that and I think that there are some validity to that side of the MACD indicator, but it's hard to create a replicable system based off of inference like that, based off of somebody's interpretation of it. That's why when we tested everything with our signals research, we did off of the raw peer signals. You had to get an actual cross or you had to get an actual move above a certain level or below a certain level for us to then be able to make a trade because we can’t infer or basically have some sort of assumption that it could go down or it could go back up. If I gave two people the same chart, ideally, they would make in most cases, very, very different predictions based on many different price points going back in the past and the indicators. I think that that's why for the sake of what I do, I like to have more concrete data points than just divergence because it’s always up to interpretation. Hopefully this helps out. As always, if you guys have any comments or questions, I’d love to hear what you think about MACD if you guys used it. If not, hopefully you start using maybe some of the better indicators that we’ve gone through in our signals research. But in either case, hopefully this helps out and it brings a little bit of context around it. Until next time, happy trading!