Moving Average Convergencedivergence Macd

MACD was invented by Gerry Appel for the stock market because he noted significant market cycles of 12 to 13 weeks and 24 to 28 weeks. Although developed for weekly markets, MACD has been used with the constants unchanged for daily commodity markets This must be a truly robust indicator since there is no guarantee that there are 13- or 26-day cycles in commodities. A divergence occurs when the line drawn between successive significant highs of the indicator have a slope opposite that of the...

Simple Moving Averages

Several hundred years ago Karl Friedrich Gauss proved that the average is the best est imator of a random variable. As a result, in statistics the mean is always the nominal forecast. This best estimator is certainly true for the market in the case where the diffusion equation applies. The best estimate of the location of the smoke plume is the center of the plume, the average across its width. This is probably the reason moving averages are heavily used by technical traders they want the best...

Exponential Moving Averages

Exponential Moving Average Response

The exponential moving average EMA is a way of recursively calculating the average, emphasizing most recent data more than older data. The EMA, by the way, is a mathematical realization of real filters. Simple averages can only be calculated, they cannot be generated in physically realizable filters. The equation for the EMA is NEW EMA - 1 - K OLD EMA K NEW SAMPLE In words, this equation says that today's EMA is formed by taking a fraction of today's data and adding it to the compliment of the...

Leading Indicators

An optimum predictive filter can be derived for a message source having a Poisson probability distribution for its waveform 1 A Poisson distribution describes the probability of zero crossings within a given interval for a waveform having a zero mean and swinging between positive and negative values. Skipping all the heavy math and applying the optimum predictive filter to trading, this filter turns out to be basically the price less its EMA if the price function is modified to have a zero...