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Tom:
We are quite in agreement.
"in case 2..." recently I was looking at a stock (I forget the name) which
had been in a strong uptrend. As is normal, on the way up the price wiggled
a bit, and when it did the price oscillator would turn down giving a very
false signal. I also had the same 2 moving averages on the price chart,
which were both going up and not crossing each other. It took me a few
minutes to understand what was happening. This and the transition phase are
the weakness of the PO/MACD.
I use the % method with a PO. The curve is the same shape as when using
the price option, but the results are normalized and tend to give a little
information on the relative volatility of the stock. I haven't made any
serious study of this so I can't say whether it helps or not.
I use longer moving averages as well as short ones. Try showing a shorter
PO and a longer PO with the same chart. I hesitate to suggest any
combination of moving averages as we have to try out a few and select the
ones that suit us best.
Thanks for your thoughtful comments.
Lionel Issen
lissen@xxxxxxxxxxxxxx
----- Original Message -----
From: "Tom Strickland" <tstrickland@xxxxxxxxxxxxx>
To: <metastock@xxxxxxxxxxxxx>
Sent: Tuesday, February 06, 2001 8:18 AM
Subject: Trending versus Consolidating Markets
> Lionel,
>
> Thanks for your comments. Let me expand a bit about the MACD. First, I
> often use the terms MACD and Price Oscillator ( PO) interchangeably at
> times although this isn't strictly correct. I usually use the 12-26
> percentage-basis PO instead of the standard MACD. I suspect that comparing
> POs of securities on a percentage basis would tell something about a
> security's volatility. However, I haven't yet done a study to see if this
> is true.
>
> No indicator is perfect, and that sure includes the MACD (PO). The
problems
> begin when the indicator goes from trending to consolidating, as indicated
> by the MACD going from zone 1 to 2 or from zone 3 to 4. At least three
> things can happen after this crossover: 1) the price can quickly change
> directions and begin trending in the opposite direction, 2) it can
continue
> to trend in the same direction at a rather steady rate, or 3) it can
> stagnate into a trading range. In the first case a significant move can
> occur before the MACD crosses the zero line that indicated a new trend has
> begun in the opposite direction. In this case, buying when the MACD
crosses
> above its moving average and selling short when it goes below the moving
> average is a better strategy than waiting for MACD to cross the zero line
> that indicates a new trend. The problem with this approach is that you
> don't know for sure that the price is trending until the price has moved a
> significant distance. I haven't found a way to resolve this difficulty.
ADX
> also has this lag problem.
>
> In case 2), if the trend is growing at a relatively constant rate, the
MACD
> will whipsaw across the trigger line, giving lots of false signals. This
> can often be avoided by looking at the price and several moving averages.
> If this is case 2), the price will not cross moving averages (such as the
> 20-day MA) but will move parallel to them.
>
> In case 3), the price will settle into a narrow range and the moving
> averages will converge to the price. The MACD will hover near the zero
> line. In this case it is best to be out of the market.
>
> I have a lot of trouble with this transition, so I usually watch to see if
> the price is crossing the moving averages, and if so, I get out. This
isn't
> very satisfactory to me, but I haven't come up with anything better.
>
> As an aside, I find that the 3-10 PO is fairly good for short-term
signals.
> Go long when the 3-10 PO is greater than zero and crosses above its 3-day
> MA. Sell short when it is less than zero and crosses below its 3-day MA.
> Also, if you plot the 16-day (give or take a couple of days) MA of the
3-10
> PO, that MA looks a lot like the 12-26 PO.
>
> Any comments you or others have about all this are most welcome!
>
> Best wishes,
>
> Tom
>
>
>
>
>
>
>
> At 05:49 PM 2/3/2001 -0600, you wrote:
> Tom:
> Your ideas are interesting. I use a price oscillator instead of MACD as I
> can easily preset my own parameters. With your Zone definitions and ADX,
I
> don't think that VHF adds much new information.
>
> MACD is a fairly good indicator. With a stock like AAPL, which has had a
> catastrophic collapse in price, it doesn't work well.
> > Lionel Issen
> > lissen@xxxxxxxxxxxxxx
> > ----- Original Message -----
>
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