macd vs. stochastics

This is a discussion on macd vs. stochastics within the Technical Analysis forums, part of the Methods category; Guys, please comment. thanks. In a range bound market (im only talking about range bound markets), like this stock right ...

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Old Jun 28, 2011, 2:18am   #1
Joined May 2011
macd vs. stochastics

Guys, please comment. thanks.

In a range bound market (im only talking about range bound markets), like this stock right now---ENTR stuck between $7.3-9.3 (picture attached), how useful (if any) do you find MACD or STOCHASTICS in determning when the trend is about to begin going up or down, or when momentum is picking up or dropping. And also, how can you tell.
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Old Jun 28, 2011, 3:44am   #2
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Re: macd vs. stochastics

MACD is good only when the security is trending because it is based on two different moving averages and a moving average of this moving average. Using MAs in a trading range provides a lot of whipsaw becuase it is a lagging indicator, and so, calculation is always behind price actions.
On the other hand, Stochastics (Oscillators) is good when the security is trading in range, like the one you have on the chart. Oscillator calculates the momentum of the price. It indicates when the price's momentum is at max/min, i.e. change in slope, and gives you overbought/oversold signal. for stochastics, it calculates the momentum at first then uses moving averages to smooth the data, and it uses another moving average on that moving average, aka the signal line, to indicate change in trend.
The best way to determine whether the security is in range or trend is to use ADX, where low reading on the ADX (<30) indicates a range period, and high reading (>30) tells it is trending.
Hope this helps.



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Originally Posted by jamesj188 View Post
Guys, please comment. thanks.

In a range bound market (im only talking about range bound markets), like this stock right now---ENTR stuck between $7.3-9.3 (picture attached), how useful (if any) do you find MACD or STOCHASTICS in determning when the trend is about to begin going up or down, or when momentum is picking up or dropping. And also, how can you tell.

Last edited by alpbeta; Jun 28, 2011 at 4:38am.
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Old Jun 28, 2011, 4:34am   #3
 
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Re: macd vs. stochastics

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Originally Posted by alpbeta View Post
MACD is good only when the security is trending because it is based on two different moving averages and a moving average of this moving average. Using MAs in a trading range provides a lot of whipsaw becuase it is a lagging indicator, and so, calculation is always behind the price.
On the other hand, Stochastics (Oscillators) is good when the security is trading in range, like the one you have on the chart. Oscillator calculates the momentum of the price. It indicates when the price's momentum is at max, i.e. change in slope, and gives you overbought/oversold signal. for stochastics, it calculates the momentum at first then uses moving averages to smooth the data, and it uses another moving average of that moving average to indicate change in trend.
The best to determine whether the security is in range or trend is to use ADX, where low reading on the ADX (<30) indicates a range period, and high reading (>30) tells it is trending.
Hope this help.
That is a good explanation Alpbeta and I am glad to see that you understand Stochastics. I would also add that stochastics can be a good indicator for trends as well if you will adjust the periods higher. But you still need to know how to read the charts to know when the market is in consolidation or when it is trending.........This is why I use Elliott Wave Theory........ I also use stochastics, and Williams %R, and Ichimoku on 3 different time periods to confirm wave counts....

Good Trading,
Dave
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Old Jun 28, 2011, 7:18am   #4
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Re: macd vs. stochastics

As I tried to explain in your other post about this stock I think MACD is MUCH more than "just a trending" indicator. Its use can be like an oscillator if you understand the use of the histogram as well. I used to use Stoch and still have them on my charts but by and large focus on MACD fastline and the Histogram. The fastline and position relative to the 0 line and of course the slow signal line tell about the "trend" and the Histogram acts as a good oscillator. When BOTH are up and above 0 line you have a trend (in MY opinion). When both are down and below 0 you have a downtrend. When the fast line is close to the 0 line (usually one block above or below) then you are usually consolidating and trendless. The histogram is useful as an oscillator here if you wish to time your trades duing this consolidation phase but truthfully I find a shorter time frame more useful. What I mean is if the daily shows oscillations around the 0 line with MACD I will use 60 min time frame MACD and look for a bullish divegence and rise toward the 0 line in THAT time frame and have been more succesful that way. If you think about it the lower time frame "trend indicator" like MACD will basically show up as an oscillator on the longer time frame. Check out the MACD on a daily chart and you will see it almost perfectly matches the Stoch or even the MACD HISTOGRAM (oscillators) on the weekly chart. So you can use MACD and Histogram as trend and oscillator respectively if you wish.

It really does not matter which indicator you use in my mind. You just need at least one trend indicator, one Oscillator Indicator, one Volume indicator, and one sentiment indicator and at least 2 time frames for each (weekly & daily OR daily & 60 min time frames for example).
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Old Jun 28, 2011, 7:38am   #5
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Re: macd vs. stochastics

One more thing...I use those multiple time frames and want to see a BULLISH divergence on BOTH time frames at the same time. I want the histogram on the weekly to point up but be below 0 (but just about to cross up)and the MACD fastline to just start curling up. When this coincides with a BULLISH divergence on the daily charts and the histogram is also showing bullishness then you have a nice potential trade on your hands.

Check out the weekly and daily charts on the $SPX (S&P 500) on the first few days on 9-2010 as an example of what I mean. Even look at the weekly and daily in mid 3-2009. You will see matching bullish divergemces. You will see that the daily is more important to follow early in the trend and as the trend matures the weekly also goes above the 0 line. That is a strong trend and one to ride until the weekly then says the trend is weakening. When the weekly MACD fastline is above 0 and rising ignore the daily MACD except to use as buying opportunity until it matches the weekly MACD fastline turning down to sginal end of the trend.

These are just my thoughts and how I use MACD and the histograms on mutiple time frames. So as always explore for yourself and take it with a grain of salt from some guy online who you have never met...

Good Luck.

Last edited by eegozi; Jun 28, 2011 at 7:45am.
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Old Jun 29, 2011, 2:50am   #6
 
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Re: macd vs. stochastics

Nice post and good work eegozi. You obviously have a good understanding of MACD and your own system to go with it. I agree that you have to look at multiple indicators on multiple time frames to be successful. And must have a good understanding of how they work.
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Old Jun 29, 2011, 5:34am   #7
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Re: macd vs. stochastics

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Originally Posted by JahDave View Post
Nice post and good work eegozi. You obviously have a good understanding of MACD and your own system to go with it. I agree that you have to look at multiple indicators on multiple time frames to be successful. And must have a good understanding of how they work.
Thanks...I am no expert but it is my favorite indicator.
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Old Jun 29, 2011, 5:41am   #8
 
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Re: macd vs. stochastics

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Originally Posted by eegozi View Post
Thanks...I am no expert but it is my favorite indicator.
Shochastic is my favorite because I totally understand what it can do on different time frames and different values within that time frame, but I can see where MACD can do that as well.
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Old Jun 29, 2011, 10:02am   #9
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Re: macd vs. stochastics

jamesj188 started this thread I find macd ok. I actually pay good attention to that histogram!
And yes, there are a lot of ways to look at it and get something out of it like egozi was explaining.
I dont find stochastic useful at all though.

By the way, entr is looking good, gona hit $9.5 level by end of this week, no problem. I even bought a few grand extra early morning today.

Thanks again for the comments )

btw, anyone use any studies on volume besides volume itself? like money flow index or something else???

Last edited by jamesj188; Jun 29, 2011 at 10:50am.
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Old Jul 4, 2011, 4:18pm   #10
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Re: macd vs. stochastics

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Originally Posted by eegozi View Post
One more thing...I use those multiple time frames and want to see a BULLISH divergence on BOTH time frames at the same time. I want the histogram on the weekly to point up but be below 0 (but just about to cross up)and the MACD fastline to just start curling up. When this coincides with a BULLISH divergence on the daily charts and the histogram is also showing bullishness then you have a nice potential trade on your hands.

Check out the weekly and daily charts on the $SPX (S&P 500) on the first few days on 9-2010 as an example of what I mean. Even look at the weekly and daily in mid 3-2009. You will see matching bullish divergemces. You will see that the daily is more important to follow early in the trend and as the trend matures the weekly also goes above the 0 line. That is a strong trend and one to ride until the weekly then says the trend is weakening. When the weekly MACD fastline is above 0 and rising ignore the daily MACD except to use as buying opportunity until it matches the weekly MACD fastline turning down to sginal end of the trend.

These are just my thoughts and how I use MACD and the histograms on mutiple time frames. So as always explore for yourself and take it with a grain of salt from some guy online who you have never met...

Good Luck.
Hi eegozi,
Which Histogram you referring to, a volume one? How does work with being over?
Thanks fro your help.
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