Over the coming months we will discuss a variety of stock indicators and how these can help an investor identify market cycles and significant shifts in market or company fortunes. Investors have different time horizons which can vary from 1 day to 30 years. Regardless of the investment timeframe, you must determine an entry and exit price which may or may not sync with your investment timeframe.
Stock market indicators can help identify market trends, volume, volatility and momentum across different timeframes. The longer the timeframe e.g. days, weeks or months over which one can measure results, the more consistent the resulting patterns and analysis will be. If you are trading intra-day then the bigger investment picture or outlook for a company, commodity, fund or ETF is hardly relevant. Chart indicators however can be helpful regardless of timeframe.
In this article we will examine the MACD or Moving Average Convergence Divergence indicator. This indicator can help identify shifts in trends in price both to the up and downside.
The MACD consists of two measurement metrics (signals) that can be charted as a fast line and slow line. The fast line measures a faster-moving average of price movements and the slow line measures a slower-moving average of price movements. The final metric used in this indicator defines the period of time.
We will not go into the technical details of how these indicators are measured. The basic concept of the MACD is that by using two different timeframes for measuring moving averages, when the fast and the slow moving average lines converge, they indicate a potential shift in market direction, up or down. Whether you are investing over mid or long term horizons these indicators can be measured over monthly, weekly or daily price discovery and timelines.
Identifying shifts in price trends is a significant factor that can help with investment buy or sell decisions, no matter what the timeframe. The MACD is just one indicator among thousands. Often, many indicators are used in concert to identify and confirm shifts in trends. Understanding technical analysis can be a valuable toolkit for an investor in their overall decision making. It can take many years to learn and master this aspect of investing but then again, no dicipline worth learning comes easily.