What is MACD?

Some of you are probably wondering.  What is MCAD?  You have heard traders talk about it.  How they have used it to produce themselves big gains in the stock market.  But what exactly is it and how can you use it to make you money in the market?

   The MACD is a technical oscillator which will give you buy and sell signals.  It is based on a mathematical formula which is based on price movement.   The indicator is supposed to give you overbought and oversold signals of a given stock. 

    When the MACD enters the overbought territory it is a signal to buy.  When it enters the oversold territory it produces a sell signal.

    The benefit of MACD is that it has been tested for a long time.  The indicator was first introduced in 1960 and has been widely successful since then.   Many professional traders consider it a great way to make money in the markets.

    It has been subject to a lot of criticism however.  Some investors believe that it is too random.  A person trading with the MACD will have a series of wining trades as well as a series of losing trades.  They argue that the MACD will often give out false signals.  Many of these people consider it a lagging indicator.  That will tell you what happened after it happened.

   However even though it may have a series of wins and losses it will still come out ahead over a large number of trades.  Every trading strategy will have its share of wins and losses that is how the stock market works.    Any trader who claims that the MACD cannot be used to make money in the stock market has never traded with the MACD.

   That being said you must also realize that the MACD as well as any other technical indicator will have its share of false signals.   Because of this most traders will not use the MACD as a standalone indicator, but more as a confirmation indicator.  This helps to weed out false entry signals.