THe difference in using MACD in the present vs the past
Alright I know the basics and the purpose the the MACD and the MACD histogram. It's just moving averages blended together to create convergence/divergence. A popular way to use it is the 26/12 with a 9 being the slowest line. With that said, its really a bunch of moving averages so why the criticism of this indicator not working during volatile times?
Criticism found on wikipedia:
"With the emergence of computerized analysis, it has become highly unreliable in the modern era, and standard MACD based trade execution now produces a greater distribution of losing trades[
citation needed]. Some additions have been made to MACD over the years but even with the addition of the MACD histogram, it remains a lagging indicator. It has often been criticized for failing to respond in mild/volatile market conditions.
[3] Since the
crash of the market in 2000, most strategies no longer recommend using MACD as the primary method of analysis, but instead believe it should be used as a monitoring tool only. It is prone to
whipsaw, and if a trader is not careful it is possible that they might suffer substantial loss, especially if they are
leveraged or trading options."
So MACD does not work in volatile times because of computer analysis but moving average still does? I'm not understanding this too well, can somebody explain to me?
No, I don't use MACD in my trading but I'm curious in learning a little more about the MACD and in the end, I'll decide if I want to use this indicator or not. I know simple is usually better, but I want to learn the concept as well.
if i read that right - it's basically saying that MACD trading systems have been run so many times that any trading edge has been gone away. in fact, as alluded above, the signals are now so obvious that's it's often better to use as a contra-indicator.
it's the same with moving average crossovers. during volatile times, you'll see a lot of whipsaws. when you add in the cost of those bad signals with the gain you get from the good ones, the edge is probably gone.
Take Bollinger's advice and use indicators from several categories--trend, volume, overbought/oversold.
That way, when all 3 say go on a fast chart, its pretty safe and you dont have 2 from the same category patting eachother on the back.
TCF is a better trend indicator than MACD if you tweak the settings to suit your purpose.
Perhaps saying 'pretty safe' is misleading. I mean its higher probability with less risk since 3 categories of indicators are in sync..