Moving Average Convergence/Divergence (MACD)
Moving averages
How does the price behave in comparison to the average of the last time? The answer to this question is provided by the so-called moving averages (GD), which are also often referred to as simple moving averages (SMA). The price average of the last few days is plotted here over each individual trading day.
Common are for example GD lines for 30, 38, 90, 100 and 200 days. Which line you choose depends on your investment horizon. For short-term investments, the 30- or 38-day line is recommended; for investments of around three months, the 90- or 100-day line is a good choice. If you want to track the trend over a good six months, the 200-day line is the right one. If the price exceeds a moving average, this is a buy signal according to the trend following strategy. If, on the other hand, the price falls below the GD line, this is a sell signal according to the trend following strategy.
By the way, you can easily view the moving averages of a stock or an index at Cortal-Consors. In the menu item "Quotes & Markets", enter the name or the ISIN in the search field. Then click on the chart. Under the menu item "Moving averages" you enter the line you are interested in. You have the choice between 30, 38, 90 and 200 days.
In the following chart of Bayer stock (ISIN: DE000BAY0017), for example, the 38-day GD line is additionally drawn. You can see: The line is smoother than the chart and the upward and downward swings have moved somewhat to the right compared to the chart. By the way, the longer the period of the moving average, the flatter the line becomes and the further to the right the swings shift.
Not easy to understand, but helpful is the MACD (Moving Average Convergence/Divergence), which shows whether different moving averages are drifting apart or converging. You do not need to memorize the complicated formula for the calculation. But you should remember: A positive MACD indicates an upward trend, a negative one a downward trend.
Trend following as an investment strategy - recommendable or not?
Is trend following recommended as a strategy? Does it make sense to follow the herd instinct of other investors? There is no doubt about it: as an investor, you have the chance to be in early on an upswing and to profit from self-rising trends. However, there are also risks, such as the risk of false signals and the risk of not catching trend reversals in time. The biggest risk, however, are speculative bubbles that are reinforced by trend following strategies and burst very suddenly at some point. Therefore, the trend following strategy is mainly useful for short- to medium-term investments. It is less suitable for long-term investments.
The most important points at a glance:
Trend following is one of the most important strategies in the field of chart analysis for https://trade-exness.com/mt4/.
Trend following means: when selecting securities, the focus is on market trends. If a stock is on the rise, it is bought. If the prices fall, an investor bets on further price losses.
A trend can be identified by trend channels, which are drawn on a chart. They illustrate an upward or downward trend.
Another means of detecting trends are moving averages. These are curves that show the average of the last 38, 100 or 200 days for each day or month. If a chart crosses its moving average, this allows forecasts about the future price trend.
The MACD (Moving Average Convergence/Divergence) ratio provides information on whether different moving averages are drifting apart or converging. A positive MACD indicates an upward trend, a negative one a downward trend.