All language subtitles for 10. MACD Powerful Moving Average Convergence Divergence

Another powerful tool that you can use in this whole moving average kind of section here is called the

Moving Average Convergence Divergence or May Moving Average Convergence Divergence.

And it's really widely used.

A lot of people use this.

In fact, a lot of times it's the default setting on a trading platform would automatically just kind

of show you that.

And we'll have a graphic here in a second so you can see what it looks like to.

But that's how popular it is.

And the reason is populace's trying to overcome that challenge that a good discipline investor, we

want to be good, disciplined investors, that we have that challenge.

We're waiting for the price to cross over a moving average, for example, or another moving average

across over another.

We're waiting for this crossover rule to happen and we can see it forming.

We can see it's coming.

We're hoping it's going to come.

But you wish you could take action now, right?

You wish I could.

I just get in a little bit earlier.

Do I have to wait for the crossing?

Well, yeah.

You're a disciplined investor.

You got to wait.

But with the moving average convergence divergence measure, you know, this gives you an opportunity.

Maybe you could, you know, get in there a little bit earlier, out a little bit early, depending

on whether it's converging or converging.

So let's take a look at that.

But that's the whole idea, is it's overcoming that challenge, waiting for the crossover to happen.

So if we look at it with crossovers, you see a merge, right?

You see them coming in the turning turning point and they're approaching.

And then when that happens, then you're you're looking for a new direction to occur is the idea.

And by that time that crossover occurs, you know, you've it's lagging indicator.

Right?

So the absolute peak was a peak or the absolute trough or bottom has already passed.

So you can't buy at the absolute low or you can't sell at the absolute high.

You're waiting for that lagging indicator.

Catch up and really give you a good solid answer on it.

And that's a good thing about moving averages, by the way, because it gives you some good, solid,

you know, some good, solid indication, basically.

But this is where the message comes in.

Again, we're going to visually see or quantify that, that there's there's an opportunity here and

you're going to try to get into that, you know, there in at that trough or out of that peak a little

bit more.

So we think about convergence and divergence.

Convergence would be coming together.

Right.

And then when you have convergence and indicates a trend, you know, we're looking for trends.

The trend may be coming to an end.

It's kind of an early warning signal.

So we've got a trend.

Could be up.

It could be down.

But something's happening with a convert.

There's a convergence.

And that's a signal that the trend is going to come to an end here.

And we'll see that graphically in a moment.

A divergence think of that is going apart or more daylight.

It might be a way to think of it.

And so the current trend trend is safe from a crossover or reversal.

When we were looking at those ones with that more daylight, we knew, you know, that the far left

of the graph, we had a lot of daylight.

So it had to come really, really far to get to that moving average.

We have a little bit of safety there.

So divergence of, you know, more daylight are going apart.

You know, it really is an indicator that the trend is not going to reverse.

If anything, it looks like the trend might be safer for a longer period of time.

We will continue to ride that trend, at least for a few more periods, maybe.

However, abnormally wide divergences are not sustainable and can be a warning.

The prices may have started to reach an extreme.

I mean, you think about it, there's these why price ranges and we might be really kind of approaching

that peak.

Or maybe we're going the opposite way.

We're approaching that bottom.

So that's another way that you can look where convergence is really indicating a trend might be coming

to an end.

A divergence might be also an early warning signal that, you know, things could be good, but it could

be a warning signal also that we might be hitting either that trough or that peak, too, so we can

use this MACD to kind of help us with that.

So we think about it.

You know, how it kind of is calculated is you take a long term or a longer term moving average prices

and they're subtracted from the short term moving average prices.

Right.

So it's kind of mathematical.

The trading platform would do this automatically.

You just choose that you want it, you know, to indicate the EMCDDA.

And then I'll create a nice line on your chart or create some information there for you.

It's created by George Aperol and he used exponential moving averages of twenty six and 12 days, although

you can change to Primus if you want.

But really what I see in the, in the, in the literature and everything, everybody is pretty solid

on this.

Twenty six to twelve days.

But you can adjust it though.

Most people would recommend that you stick with it and just, you know, use what's been kind of tested

and proven.

So that's what we'll use here too.

So if we look at our chart, you know, here's our familiar chart again.

We've got a we put in a twelve day and a twenty six day simple moving averages the blue line in the

pink line, as you can see, and it moves across our prices there.

But at the top because we automatically fall.

Are we selected in these twelve and twenty six periods for MCD?

You can see that you see some lines, you know, kind of going together, a twelve and twenty six line

looking at these convergences and divergences.

So let's look at what this is telling us.

So if you look at the far left and when you see the lines rising or the.

Who averages are basically what what's happening?

There's the two lines are diverging and certainly the trend is going to continue.

Diverging means trend continues, right?

Though we might be peaking or troughing, a trend is going to continue.

So if we look at the top of our chart here and we see these black and red lines kind of go on up there,

that's that's that's the lines are rising.

And that's indicating that the two you know, the trend is going to continue.

And if we look down, if let's say we're way back back in time on this, you can see how, yes, obviously

that trend was continuing in this case.

Once they start to flatten out, if they're at the top and they start flattening out and they start

coming down, then the when the ceiling falls, that means the trend is is is ending.

Right.

So the two averages are starting to come closer together and they're converging.

And the MCD is going to represent that to us.

As far as that as far as that happening.

And we can see it on the mean chart, too.

You can just start seeing those moving average lines starting to come closer together, less daylight,

and they're coming close together.

It's just that the MACD is going to give you a little bit of indication of that coming maybe ahead of

time.

And then we go so on and so on through throughout that one thing to the far right there have a no more

histogram, maybe easier way to visualize.

If you look at that kind of those blue bars there, the histogram sometimes can be an easy way to visualize

that.

You can see where you might have peaks and valleys and the blue line and where it gets real narrow to

the to the mean line, which with zero how EMCDDA would be a plus one minus one up and down from there

as it approaches that that's when they're kind of converging together.

You can see how close they are together, maybe easier with the blue part than you can with like the

red and the Blue Cross each other.

But when they cross, they should be the histogram should be basically almost zero basically is what

it would be.

So this is interesting.

This is great.

You're saying like, OK, but I can kind of see it on the other chart, too, versus helping me.

Well, if you look closer at it, I'm going to put on some highlights here.

The real advantage of this is doesn't tell you earlier what is happening with the trend.

That was her whole idea.

Right.

And we want to see things happening a little bit sooner than waiting for the Priceline to cover.

And so the gold circles show the ending in this example of an upward trend.

Right.

There's a cell signal going on and you can see where you know, where there's these let's say the lines

are crossing.

And when I was first going down, as the blue line starts coming down, starts to cross for a little

bit, then goes back up or it's crossing over prices, you know, crossing below, you know, prices

are crossing below, let's say the blue line or cross and below the longer line.

If you look at vertically strip between these two circles, you can see that the MACD is giving you

an earlier sign, you know, a few periods ahead of that, that something might be up and to be aware

of.

So that's where people use it.

As far as I'm using my pricing, my moving averages to make buy and sell decisions.

But I might be using that MACD to give me an earlier warning that something's happening and I might

be able to actually act before they actually do have a crossover period.

So that's the whole idea behind me.

So, again, nothing's perfect, but that's the idea behind them is you're trying to get an indicator

ahead of time than waiting for the prices to happen as far as crossing over.

In addition, you can use other indicators in combination with these to try to get confirmation that

that's truly what's happening as well, too.

So if you see lots of blue lines or shoes at the top, that you can kind of get a feel for what's happening.

And then it's going to indicate what's happening below in your chart, too, as another way of trying

to maybe get ahead of a little bit or another thing that might indicate to where you're looking at and

say, oh, I think a selling time is coming.

All my MACD is kind of confirming this a couple of days ahead of time.

I really want to watch that.

Or maybe I want to just get out now while I can, and then we'll see from there as far as whether we

can go back in or not.

So that's how the Makeda is used as an early indicator on your moving average chart.

Moving forward chart.