Moving Average Convergence Divergence MACD

Convergence Trading

The moving average convergence divergence (MACD) indicator combines some of the principles of oscillators, like those already discussed, with a dual moving average crossover approach. It uses two metrics, both represented with lines. The faster of the two lines (called the MACD line) is the difference between exponentially smoothed moving averages of closing prices the 12- and 26-day moving averages are most commonly used. The slower of the two lines is the exponentially smooth average of the...

The Flatness Coefficient

The Flatness Coefficient is a proprietary moving average indicator that was developed specifically to be used in pairs trading. It is used to measure the amount of trend or flatness that is observable in the moving average of a pair of stocks. This information can be an excellent predictor of the probable success of a pairs trade as it begins mean reversion. The Flatness Coefficient is not specifically applicable to single stocks or indexes, and its application will not produce any reliable...

Pairs Trading A Brief History

Before beginning a formal investigation into pairs trading, putting the strategy into a historical context may be of some interest to the reader. Pairs trading and market-neutral strategies alike are not new. They have been around in one form or another since the beginning of listed markets and have been studied and used by some of history's most notable traders. The hedge fund industry, however, has given a new face to these strategies as well as the specific vehicle needed to demonstrate...