There are multiple trend analysis indicators, but one of the more successful is the MACD divergence screener, developed by Gerald Appel. Created in the 1970s, the MACD was designed to discover and analyze alterations in a stock. It measures fluctuations in the strength of the stock, its momentum either up or down, the direction in which it is moving, and the length of the various fluctuations or moments of stasis that the stock exhibits. The divergence line is one of three signals and, of course, measures the differences between closing prices and other profit indicators.
For someone wondering how to make money in the stock market, working with the MACD divergence screener allows a trader to examine trends in a highly focused manner. The ability to compare averages makes determining shifts accurately, a great deal easier. While a wide range of trend indicators are commonly used, the MACD has the ability to accurately anticipate stock movement farther into the future than most.
My favorite method for using the MACD is to turn on histogram bars. When the bars break above the 0 line, it’s a buy signal. When the histogram bars break below the 0 line, it’s a sell signal. The buy or sell signal is better the deeper the MACD moving averages cross each other. Also, you want to look for signs of a divergence between the MACD and price. Some of the most profitable MACD sell signals occur when price is making new lows, while the MACD is trending higher.
As with any technical indicator, keep in mind that the MACD is just one of many indicators. If you use 3 indicators, you should weight the MACD no more than 33.3% towards your decision to either buy or sell a stock. If you use 4 indicators, you should weight the MACD no more than 25% towards your decision to buy or sell.