Stock Volume Indicator Reveals Momentum Energy That Has Not Yet Altered Price
MACD is the most popular Retail Trader stock indicator; however, it often lags price due to the fact that it is based on moving averages. There is a way to improve the use of MACD for earlier signals and entries to increase profits and lower risk.
The Chaikin Oscillator (ChiOsc) stock Volume Indicator provides the missing data that allows Retail Traders to see the MACD momentum building before the MACD crosses. By using these two indicators in combination, Retail Traders can enter a stock earlier before the sudden momentum run.
Below is an example of how this works. ChiOsc with its Exponential Moving Average (EMA) turns up and crosses a day ahead of MACD. This is the large-lot data that MACD is missing. The ChiOsc indicator is revealing strong stock volume momentum energy that has not yet altered price.
The following day, price does move with momentum, and the gain is 10 points in a one-day trade.
As a Price and Time Momentum Indicator, MACD is missing one of the primary DATA streams that is recorded for every stock transaction. This missing data is what causes MACD to lag and give false positive or false negative signals during sideways trending price action. When the missing data is included in the analysis, MACD Users are able to see the more subtle patterns of MACD and enter the stock before the run begins.
This is a huge bonus for Swing Traders, Day Traders, Momentum Traders, and other short-term Trading Styles. The missing data is a key element of Professional Trading analysis, and it is why Professional Traders earn so much more profit per trade than Retail Traders.
Martha Stokes CMT
TechniTrader technical analysis using StockCharts charts, courtesy of StockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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