Intraday charts are used to track the intraday movement of stocks. For instance, nifty intraday chart is used to predict the movement of nifty index or nifty future for intraday. As we have discussed before, various tools and indicators are used to track the same such as Moving average convergence divergence, MACD study. In this article of intraday charts, we see how to trade using MACD.
* MACD was developed by Gerald Appel in 17th century.
* Understanding and application of MACD is lot easier compared with other indicators.
* MACD consists of an oscillator and a base line on nifty chart
* The base line has a value of zero and the oscillator swings above and below the base line on nifty live chart
* Note: The reading value on Y axis for MACD changes from time to time as per the current value of the stock, say nifty future chart
* The difference between the two moving averages is the MACD oscillator.
* For instance, on a nifty intraday charts, if the value of nifty 10 SMA is 5050 and 20 SMA is 5080, the difference of SMA 20 and SMA 10 is 30 which makes the oscillator to swing below the base line
* At this point, 10 SMA is below 20 SMA line and the value of the oscillator will be 30 below the zero line which is -30 on a live nifty chart
* If nifty 10 SMA is 5080 and 20 SMA is 5050, then the value of oscillator is +30 making it to stand above the base line
* Three applications are majorly used with moving average convergence divergence indicator to trade in stocks like nifty intraday.
* Firstly, when the oscillator cuts the zero line towards the upper side, it means that lower SMA (10 SMA for instance) is crossing higher SMA (20 SMA) which gives buy signal for the respective stock
* If the oscillator cuts the base line in the downward direction, the stock is about to enter in to bearish phase.
* In the next application, we have 2 oscillators in the indicator, first being MACD line and second the signal line.
* Irrespecive of base line, if MACD cuts signal line in the upper direction, it is a buy signal and if the same cuts the signal line in the down side, it is a sell signal.
* Third application, divergences though occur in limited occasions, it is found to be much effective for trading.
* In certain kinds of market, even if markets move in one direction, MACD line moves in the reverse direction alerting the traders and such signals generated are said to be divergence trades.
* For instance, if the stock is moving up and MACD line is making lows, at a certain breakout point, the stock is expected to stop its bull run and enter in to bearish fall.
* As well, if the market is falling and MACD line shows upper direction, it is said that as per this application, markets might consolidate and start its bull run.
* This indicator can be used for all types of trading like intraday, short term, long term etc and can be applied on all nse charts and bse charts.
Posted on: 2016-11-15 16:39:04 Updated on: 2016-11-15 16:39:04