Bullish MACD Divergence with an Oversold Slow Stochastics

[Ares]

It would be nice to see stock picks with this criteria in this thread.

I'll start it with GNTA.

[setravis]

Let's talk about MACD.......

The strongest MACD crossovers occur near the centerline.

A MACD crossovers near the centerline usually heralds the start of a new upward trend. Crossovers that occur higher above the centerline tend to indicate the continuation of an existing trend. It's all about center, and where the crossover occurs in relation to it.

What makes the MACD crossover that occurs
a "nice divergence?"
For one thing, the crossover that occurs above the centerline.
This is most important, because it shows that this stock is in good shape from the get-go and not coming off a steep sell off.

Here's a tip: Get into the habit of eyeballing the MACD lines before you look at the price graph, and try to envision what the price graph is going to look like. This will help you interpret what this indicator means.

For the trend to end, the MACD lines must penetrate the centerline and start tracing below it in negative ground.

[Ares]

Thanks for replying to this thread and giving some tips right away Setravis.

I applaud you for that.

Note: I've been admiring your picks and am looking forward to learn more from you.

What I've learned recently was when the stochastics is in an oversold condition, this gives us the get ready to buy signal.

Apparently, we should be buying when the downtrend line of the price chart is broken (before the stochastics crossover above 20)

What I've learnt before was to wait for the stochastics to crossover and has to be confirmed by a MACD crossover before we go long the stock.

Which one is which?

If you were to trade GNTA,

1) Would you jump in at 0.311 because it looks like it may have a double bottom? (this seems like a risky entry but would be nice if the stock gaps up soon after).

2) Would it be better to wait for the price to close (or at least trade) above the weekly (or daily) 8 ema (or a drawn descending trendline connecting the recent highs)? (this seems to be better since, we are getting in WITH the short term trend)

3) Would it be better to wait for the Stochastics to cross first, confirmed by a MACD crossover (it feels like we we will be missing out on the lows and potential gap up with this entry) and:

3a) Go in with momentum? (If the momentum dies quickly, especially with a gap up, the stock may tank)

3b) Wait for price to pullback and get in when it makes a daily higher high above the 0.618 fibonacci retracement? (We will most likely pay a higher price in here but the trend seems better established.)

Looking at the recent activity, there was an inverted hammer below the 8ema before the stock gapped up with a white candle.
It makes me wonder if recent history will repeat itself with a bigger move.

I'm looking forward to your experienced opinion.

Ares

[Ares]

I found another one.

MOBE

This one has stochastics crossing over from below 20 with MACD about to cross.
MACD histogram is starting to form a mountain with an abnormal volume with a large white candle.

Go in with momentum or wait for a pullback?

[wrangler]

Hi ares
Here's some good reading about MACD. You might have already found this at stockcharts but thought I would post it in case you haven't.
Goodluck trading
http://tinyurl.com/376mz4

[Ares]

Hi Wrangler,

It's nice to connect with you again.

It's always nice to get a reminder where to get these needed info.

I found this quote from stockcharts about MACD:

" Sometimes it is prudent to apply a price filter to the Bullish Moving Average Crossover to ensure that it will hold. An example of a price filter would be to buy if MACD breaks above the 9-day EMA and remains above for three days. The buy signal would then commence at the end of the third day. "

I applaud you for keeping me up to date.

I've been busy lately because we started trading with real money - the real test.

I'm also trying to relearn how the esignal tools work ( I got a 30 day free trial).

They gave me a free one because the last time I used them was about 4 years ago.

We're looking forward to make some money within that period so we could keep it.

We bought and sold AVNR a few times already and missed out on some opportunity.

I have my trades recorded on the AVNR thread.

I currently have an open trade with AMRN (notes in the AMRN thread).

Keep in touch,

Ares

[wrangler]

Hi ares
My computer has been down since Saturday and just seen your reply.
Goodluck trading in cash,,hope you all the luck in the stock trading world.

[setravis]

The positive, which I have found best to be Bullish is a
rising MACD histogram. BUT. Equally important is a
Bullish OBV with rising OBV and Price.


How MACD Works.......
There is no substitute for looking at graphs and pattern matching in your brain. In fact, everything you need to know can be learned by looking at a lot of graphs. And the MACD graph is one of the most informative!

MACD represents the interaction of two moving averages. The long-term moving average is 26 days, the short-term is 12 days. When prices accelerate from either a trough (which is a drastic price decline) or a retracement (a more healthy movement sideways which doesn't violate that basic rules of uptrend), the shorter-term moving average overtakes the longer term one, crosses over it, and moves beyond.

The difference between the long-term and short-term moving average is the fast line, drawn in red. The MACD Histogram gives you a way to determine its strength. A smoothing (or rate of change) of this line is the slow line (drawn in black), with stockcharts.com

When the fast line crosses above the slow line, prices are diverging and accelerating on the upside. Divergence simply means a significant change in behavior.

When a crossover occurs, it's examined to see whether it occurs above or below the centerline. Crossovers below the centerline are ignored. A stock is deemed weak if the gravity of the retracement (or trough) is serious enough to pull the MACD lines below center. Strong stocks stay above center for years at a time. Those that get hit hard enough to pull the lines below center are therefore deemed not worthy of consideration.

So, crossovers below center are ambiguous......

What happens when a crossover occurs below center? It is not ignored completely. The crossover could have occurred just a touch below center, and one more day might carry it forward enough to "go positive." Once things go positive, a signal is raised. This is not a strong signal. Crossovers that originate below center must be taken with a grain of salt. But currently, we are not throwing them out.

Again, look at the graphs. If a stock's where the MACD lines are below center and you can see declines in the price graph, it is clearly time to look elsewhere.

Crossovers above center are flagged if the rate of divergence (between the fast and slow lines) is significant.This gives birth to the light turning green, for go, so to speak.

Timing is everything. Ignore price action at your peril. What you should get out of this,
is a clue to whether you should wait, or whether it's time to jump. Urgency, or worrying about missing out should never have to enter the equation. That's the goal.

When the fast line crosses below the slow line, prices are diverging on the downside.
This can cause the light to change to red, so to speak...
The exception is if this cross below occurs above the centerline. This usually indicates that a trend is either pausing or simply slowing down.

Cross-belows that occur below center cause the red light to immediately come on. This mirrors birthing of green light, for go baby... on crossovers above center.

A cross-below that occurs above center is noted. The signaler then waits to see if the progression takes the MACD lines below the centerline, or whether a rapid breakdown in prices occurs. If either event occurs, the red light comes on. This mirrors action on the cross-above.

So, treatment in the bullish case (cross above) and the bearish case (cross below) is symmetrical. There are many heuristics thrown in (the signaler gets more aggressive on stocks with a demonstrated tendency towards either strength or weakness). The signaler also starts to shut down for stocks that gyrate meaninglessly across a horizontal plane. But that is generally how things work, so you should be able to start making sense of why red and green traffic lights should come on in your mind, so to speak.......