MACD Moving Average Convergence

Divergence
The following combinations of parameters were used to study MACD for HDFC
bank.
Combination

Combination 1

Combination 2

Combination 3

Combination 4

Description
Simple moving
average with
price (MA26 Vs
Price)
Simple moving
averages (MA26
Vs MA50)
Simple moving
averages (MA26
Vs MA12)

Exponential
moving averages
(MACD: EMA12EMA26, Signal
Line: EMA9)

Outcome
Reasonable
accuracy

Delayed response
(could not predict
price trends)
Delayed response of
cross-overs but
convergencedivergence might
predict
Good predictability

Suggested
action
No action
suggested

Buy

Buy

Buy

Combination 1:
Software/Website used: Chartink
MACD MA26 (moving avg) against stock prices
The graph below comprises of data past 2013. It clearly shows that MA26 with
the price line indicates trends at cross-over points. However in the boxed area
owing to frequent cross-overs, prediction of trends is difficult.

Combination 2:
Software/Website used: Chartink
MACD MA26 Vs MA50 (moving avg)
At all cross-over points, there has been a clear indication of trends. However
certain cross-over points appeared late (could not predict the price refer figure
below)
Also when MA26 begins to diverge from MA50, the stock surges as per data from
past two years.

Cross-over
occurred
after stock
price
surged

Combination 3:
Software/Website used: Chartink

MACD MA26 Vs MA12 (moving avg)

The cross-over points seem to give delayed information. However, if
convergence & divergence are monitored using histograms, this combination
might give better results. Hence in combination 4, we have plotted convergence
& divergence (difference between 2 moving averages).

Combination 4:
Software/Website used: BSE MS Silverlight
MACD Line EMA26 & EMA12 (Exponential)
Signal Line EMA9 (Exponential)

An overview of this combination shows that the combination provides reasonable

amount of accuracy. Events have been described as below. As simple moving
averages did not yield good results, exponential moving averages were used.

Stock
Price

Volume

MACD Vs
Signal Line

Back testing of combination 4:

Upon back testing on data past 2013, the results are as follows,
Zero Line Whenever the zero line is crossed by MACD (marked by yellow
vertical lines), we notice the variations price trends. These points of MACD have
been highlighted below. It is observed that when the downward (upward)
movement across the zero line is sustained, there is a drop (rise) in price. There
are a few points which dont satisfy this criteria, however, in these cases, the
movement after zero-crossing did not sustain (marked by grey vertical lines).

Stock
Price

Volume

MACD Vs
Signal Line

Cross-over Points Whenever the MACD line and signal line cross-over, a
change in trend is observed. Some of them have been highlighted below. In most
of the cases below, a cross-over between MACD & signal line has happened
along with a peak or trough in MACD. In situations when both the indicators
appear consequently, a clear reversal of trend can be predicted.

Stock
Price

Volume

MACD Vs
Signal Line