When the market there is a clear movement in one direction or another, and the amplitude of these movements is large enough, the style of play is similar to skating on the board on the waves.It is necessary to catch the ascending or descending wave, ride and jump on it as soon as this wave is over.Obviously, the most important thing in this game is to find the beginning of the waves and the prediction of their completion.
In technical analysis, there is an indicator, which is just designed for that.It is called "The convergence / divergence of moving averages", or the indicator MACD (Moving Average Convergence / Divergence).The MACD is calculated by all technical analysis package.To understand how to calculate it manually, use the specified reference.There also is an example of the analysis MACD for Gazprom shares.
MACD is calculated as the difference between two exponential moving averages with periods of 12 and 26 days.To analyze the current situation on the schedule applied himself MACD, as well
trading signals indicator is crossing the line and the signal line.When the MACD falls below the signal line - it is a signal to sell, and when rises above - on the contrary, to the purchase.These intersections indicate overbought / oversold conditions, and divergences.
meaning overbought or oversold to catch the moment when the price of paper is clearly overpriced and therefore undervalued.That is, either the bulls or the bears were too active in the market.It is logical that after this phase of activity the trend is likely to break, and will return to more realistic levels.At the beginning of this point, the paper will be beneficial to buy or sell accordingly.
divergence condition - is, in fact, the divergence between price and MACD.The discrepancy (or divergence) bulls occurs when the MACD is maximized, and the price at the same time achieve maximum can not.For the divergence bears - all the way around.
Both of these conditions signal the turning point of the trend.The strongest signal occurs during the coincidence of these conditions.This happens a few times a year.