An Obscure But Useful Trend-Following Tool

Everyone has heard about trend-following.  And most traders have at least a foggy grasp of the relative pros and cons associated with trend following.  And anyone who has ever employed any type of trend-following technique is aware that they are great when there is an actual trend, but that whipsaws are inevitable.

What I am about to show you will not change these facts.  But today’s piece is just a “quickie” to highlight an obscure way to use a common indicator as a “confirmation/ denial” check when assessing the trend of a given security.  For the record, I am making no claim that this indicator generates profitably “trading signals in and of itself.  Its one of those things that – and I hate this phrase as much as you do but – should be used in conjunction with other indicators to get a good sense of the current “state of the trend” for a given security.

Nothing more, nothing less.

MACD Stretched Long

Most traders are familiar with the MACD indicator.  Originally popularized by Gerald Appel, it uses a set of moving averages to attempt to assess the trend in price (and many traders also use it to try to identify overbought or oversold situations).  Standard parameters are 9,26 and 12.  The version I use is different in several ways:

*Whereas the standard MACD generates two lines and a histogram can be drawn of the difference between the two, this version just generates one line – we will call in the trend line (catchy, no?)

*We will use parameters of 40 and 105

*One other note is that (at least according to me) this indicator is best used with weekly data.

The MACD4010501

Here is the formula for AIQ TradingExpert Expert Design Studio:

Define ss3 40.

Define L3 105.

ShortMACDMA3 is expavg([Close],ss3)*100.

LongMACDMA3 is expavg([Close],L3)*100.

MACD4010501Value is ShortMACDMA3-LongMACDMA3.

As I said this should be used with “other” indicators.  For example, one might consider the current price versus a 40-week moving average.

Standard Interpretation:

*If price is above the 40-week moving average (or if whatever other trend-following indicator you are using is bullish), AND

*The MACD4010501 is trend higher THEN

ONLY play the long side of that security

Likewise:

*If price is below the 40-week moving average (or if whatever other trend-following indicator you are using is bearish), AND

*The MACD4010501 is trend lower THEN

ONLY play the short side of that security (or at least DO NOT play the long side)

Finally, DO NOT assume that every change of trend in MACD4010501 is some sort of buy or sell signal.  Consider it only as a filter for your trades.

Some random examples appear in Figures 1 through 4 (click to enlarge any chart)

1

Figure 1 – AMZN (Courtesy AIQ TradingExpert)

2

Figure 2 – IBM (Courtesy AIQ TradingExpert)

3

Figure 3 – WMT (Courtesy AIQ TradingExpert)

4

Figure 4 – TLT (Courtesy AIQ TradingExpert)

Summary

To repeat, the proper use of this obscure version of the popular MACD indicator is as follows:

*Consider the trend of MACD4010501

*Consider one or more other trend-following indicators

*If there is bullish agreement, then apply your own shorter-term entry and exit techniques to trade the long side.

*If there is bearish agreement, then apply your own shorter-term entry and exit techniques to trade the short side (or simply stand aside).

Trade on!

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

29 thoughts on “An Obscure But Useful Trend-Following Tool

  1. I in addition to my friends were actually examining the great secrets and techniques found on your site and then instantly I had an awful suspicion I never thanked the website owner for those tips. Those people appeared to be as a result thrilled to see them and have certainly been loving those things. Appreciate your simply being simply accommodating and for utilizing such very good issues millions of individuals are really eager to understand about. My personal sincere apologies for not expressing gratitude to you sooner.

  2. My husband and i got very thankful that Jordan could complete his analysis using the precious recommendations he had from your own site. It’s not at all simplistic to simply happen to be offering steps that many some people have been trying to sell. We recognize we’ve got you to appreciate because of that. The most important illustrations you made, the easy web site menu, the friendships you can assist to promote – it is most excellent, and it’s really facilitating our son and our family recognize that that matter is excellent, and that is seriously indispensable. Thanks for the whole lot!

  3. I in addition to my pals have already been looking at the good solutions on your website and then all of the sudden came up with an awful feeling I never thanked the web site owner for those techniques. Those young boys became as a result happy to study them and now have extremely been loving these things. Thanks for indeed being very thoughtful as well as for considering this form of beneficial useful guides millions of individuals are really wanting to know about. My sincere apologies for not saying thanks to you sooner.

  4. I and my friends have been examining the best tips and hints from your web blog while quickly got a terrible suspicion I had not expressed respect to the web site owner for those techniques. All the ladies were so glad to read all of them and have actually been loving those things. I appreciate you for actually being simply accommodating and then for going for some helpful subject areas millions of individuals are really eager to discover. My very own honest regret for not expressing appreciation to sooner.

  5. I am glad for commenting to let you know what a excellent discovery our princess gained checking yuor web blog. She realized so many issues, with the inclusion of what it’s like to have an incredible helping character to make a number of people with ease grasp several specialized things. You undoubtedly exceeded my desires. Thanks for giving such necessary, healthy, informative and in addition unique tips about your topic to Lizeth.

  6. I wish to point out my affection for your kindness for men and women who should have help with this topic. Your real dedication to getting the message all around became remarkably invaluable and have consistently encouraged ladies much like me to arrive at their aims. Your own interesting help entails much to me and even more to my office colleagues. Regards; from everyone of us.

  7. Hi there, i read your blog occasionally and i own a similar one and i was just wondering if you get a lot of spam remarks?
    If so how do you stop it, any plugin or anything you can suggest?

    I get so much lately it’s driving me mad so any assistance is very much appreciated.

  8. I don’t even understand how I stopped up right here, however I believed this publish was
    once good. I do not realize who you’re but certainly
    you are going to a famous blogger in the event you are not
    already. Cheers!

  9. Thank you so much for giving everyone an exceptionally spectacular opportunity to read in detail from this website. It really is so amazing plus packed with amusement for me personally and my office mates to search your website at a minimum three times every week to find out the fresh guides you have got. And definitely, I am always satisfied with your incredible thoughts served by you. Selected 1 ideas in this posting are undeniably the best I’ve had.

  10. Needed to write you that bit of word to give thanks as before over the awesome opinions you have featured on this website. This has been really surprisingly generous of you to make easily just what most of us could have offered as an e book in order to make some cash on their own, mostly considering the fact that you could possibly have done it in the event you decided. The suggestions additionally acted like a good way to know that some people have the identical interest just as my own to see somewhat more regarding this matter. I am certain there are millions of more enjoyable occasions ahead for those who go through your blog.

  11. Hey I know this is off topic but I was wondering if you knew of any widgets I could add to
    my blog that automatically tweet my newest twitter updates.
    I’ve been looking for a plug-in like this for quite some time and was hoping maybe you would have some experience with something like this.
    Please let me know if you run into anything. I truly enjoy reading your blog and I look forward to your new updates.

  12. Good post. I learn something totally new and challenging on sites
    I stumbleupon on a daily basis. It will always
    be useful to read articles from other authors and practice something from other web sites.

  13. You could definitely see your skills in the article you write.
    The sector hopes for more passionate writers like you who
    aren’t afraid to say how they believe. All the time follow your heart.

  14. I must show my appreciation to you for rescuing me from this situation. After researching through the world wide web and coming across recommendations which are not pleasant, I thought my life was done. Existing devoid of the strategies to the issues you have sorted out by way of your entire article is a crucial case, and the kind that would have in a negative way damaged my entire career if I hadn’t discovered the website. Your personal talents and kindness in touching a lot of stuff was invaluable. I am not sure what I would have done if I hadn’t come upon such a stuff like this. I can at this moment look ahead to my future. Thanks a lot so much for this high quality and results-oriented guide. I won’t think twice to endorse the website to anyone who needs to have counselling on this subject matter.

  15. For hottest information you have to visit world-wide-web and on the web I found this web site as a finest site for hottest updates.

  16. You could definitely see your expertise within the article you write.
    The world hopes for even more passionate writers such as you who are not afraid to mention how
    they believe. Always go after your heart.

  17. Woah! I’m really enjoying the template/theme of
    this site. It’s simple, yet effective. A lot of times it’s very hard to get that “perfect balance” between superb usability and visual appearance.

    I must say that you’ve done a very good job with this.
    Additionally, the blog loads super fast for me on Chrome.
    Superb Blog!

  18. I simply had to thank you very much yet again. I do not know what I would’ve followed without the entire concepts provided by you regarding my question. It was a very terrifying difficulty in my circumstances, nevertheless considering the well-written fashion you solved the issue made me to weep over delight. I am just grateful for your advice and in addition pray you realize what a great job you happen to be putting in educating others thru your website. I am sure you’ve never encountered any of us.

  19. Hi there superb website! Does running a blog such as this require a great deal of work?
    I have very little understanding of programming however I had been hoping to start my own blog in the near future.
    Anyway, if you have any recommendations or tips for new blog owners please share.
    I understand this is off topic but I simply had to ask.
    Kudos!

  20. My spouse and i ended up being absolutely contented Michael managed to deal with his analysis through your ideas he grabbed when using the web page. It is now and again perplexing just to continually be giving away tips and hints which the others could have been selling. And we all remember we need you to be grateful to for that. The entire illustrations you have made, the easy web site navigation, the friendships you can help create – it’s most awesome, and it’s aiding our son and the family believe that that topic is exciting, which is certainly highly fundamental. Many thanks for all the pieces!

Leave a Reply

Your email address will not be published.