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Oracle
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MACD
Track
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- OracleTrader Swing Trades
When
you select Best
Swing Trades
in the Longer-term
section, you are
essentially asking
for the best MACD
indicators. MACD
is a widely used
technical analysis
signal that indicates
trend, momentum,
and directional
changes in a stock.
It is an excellent
indicator for multiday,
or swing
trading.
Reliability
In
addition to the
MACD signal, OracleTader
also rates each
stock on its reliability
for responding to
this signal. Historically,
not all stocks respond
equally. When stocks
are screened for
swing trades, their
reliability (based
on recent history)
is factored into
the score. Hence,
the term best
swing trades.
For
more information
on MACD, see below.
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MACD
Tracking
One of the most powerful strategies I have ever seen
for longer holding is [what I call] MACD Tracking. MACD is a technical indicator, that when plotted against
a daily stock chart, can be a very reliable buy/sell indicator. Without going
into too much technical detail, a MACD signal is basically two moving averages,
one with a different time interval than the other. Typically, MACD is
shown as two horizontal lines, one green and one red. It is said that a "buy"
signal is indicated when the red line crosses above the green, and a "sell"
signal is when the red falls below the green.
The caveat, however, is that not all stocks respond equally
to MACD. As in all other technical indicators, this particular signal indicates
a probability, not
a certainty. Furthermore, for reasons that I do not fully understand, some stocks
respond more reliability than others when it comes to MACD (and other) signals.
Hence, we could benefit from this indicator a thousandfold if we applied it
only to stocks that have proven to respond favorably in the past.
Such a list of "reliable MACD" stocks is possible
using computer screening, and the OracleTrader software does just that---it
screens for the top most reliable responders to the MACD signal.
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- Using the OracleTrader MACD Crossover
Alert
When
you check "MACD
Crossover"
alert in the Longer-term
section, OracleTrader
searches for stocks
that have just crossed
over their MACD
lines. For longs,
this means the "red"
line has crossed
above the green.
In this way, you
can be notified
the moment a stock
has changed direction,
per MACD.
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MACD Tracking Example
The chart shown above is for one of the most reliable stock
for upside response to a positive MACD signal---QQQQ. Notice that every
time the red line crosses above the green line, QQQQ rallies handily. Subsequently,
when the red line reverses and falls below the green, QQQQ responds with a downtrend.
This reliability is likely to continue, and as a trader, you could buy QQQQ
(or trade call options, etc.) on each buy signal, and unload the position on
the sell signal.
QQQQ was also chosen for an example because it is a
perfect stock for options trading. QQQQ trades about 80 million shares per day,
a perfect candidate for call and put options.
Shorting and Put Options
An equally interesting discovery was that a stock which
responds well to buy signals usually responds as well to sell signals.
Hence, during market downturns, you might choose to sell short (or buy
put options) rather than sideline.
RMBS, one of the top stocks in the " MACD reliability"
list, is an excellent stock to sell short, according to its historical response
to MACD. Notice how each sell signal (the red line crossing below the green)
is quite reliable for this stock. Coincidentally, the market was also on a downturn
during these sagging periods, so a trader could profit quite handily by
shorting the buy signals and covering when the signal reverses.
The MACD signal is available on the OracleTrader as one
of four chart indicators.
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