How to Improve MACD Signals for Higher Profits - Candlestick Patterns Explained by TechniTrader®

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.

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The following day, price does move with momentum, and the gain is 10 points in a one-day trade.

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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.

By incorporating this one additional piece of data, StockCharts.com Users will find more opportunities to trade. They will be trading with the Professional Traders more often rather than trading against this large-lot Stock Market Participant Group.

Did you know that most momentum runs are initiated by Professional Traders getting into a stock early? This is because they have access to information sooner than it is available to the Retail Trader.

Also, the Professional Trader is an expert at routing their orders to execute on a precise penny execution at the selected venue.

This makes their price patterns consistent, reliable, and rewarding for Retail Traders. However, just using MACD is insufficient to find the Professional Traders’ buying activity because when they are buying quietly, they do not move price enough to create a MACD signal.

Summary

MACD can be enhanced and improved by using indicators that include large-lot signal patterns. There are several indicators within StockCharts.com that do reveal large-lot Professional Traders’ activity before the stock moves with momentum. ChiOsc is the indicator variation created by TechniTrader for StockCharts.com Users. For more information, email info@technitrader.com.

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If you have not yet begun to trade or invest, go to Introduction: Learn How to Trade Stocks – Free Video Lesson to get started.

Learn the steps to trade like a pro with this introductory mini course. You will learn what it takes to create a Professional Trading Plan that can help you achieve your trading goals: How to Create a Professional Trading Plan

Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using StockCharts charts, courtesy of StockCharts.com

Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses