Trend following indicators - MACDThe MACD, short for Moving Average Convergence/Divergence, was developed in the 1970s by Gerald Appel. The Moving Average Convergence-Divergence is one of the most popular instruments of technical analysis. It uses a chart to determine buy and sell signals in the chart of securities. Gerald Appel explained the MACD as follows: "The indicator is often able to give accurate signals for market entry and exit. One of its strongest features is its ability to detect the approaching end of major medium-term price declines, which are also favourable times to enter the market." When calculating the MACD, two moving averages of different lengths are first determined, usually a 12-day and a 26-day average. The 26-day average is subtracted from the first, the 12-day average. As a result, a series of values called the "fast line" is calculated. From this series, a 9-day average line is again constructed, called the "slow line". Then both lines are transferred to a chart. Buy signals are generated when the fast line crosses the slow line from bottom to top, sell signals when it crosses the slow line from top to bottom. Significance for investorsIn general, a rising MACD signals an upward trend, while a falling MACD signals a downward trend. The trend strength is indicated by the MACD in that the discrepancy from the centre line provides information about this. Trend strength increases the further the MACD moves from its centre line. As the MACD gets closer to the centre line, the trend weakens. A very large discrepancy indicates overbought/oversold intervals. Since the MACD is not measured with fixed scale values of, for example, 0 to 100, it is essential to define the term "very large discrepancy" via the historical price trend. Action signals for investorsIf the MACD line changes direction from downward to upward, this represents a buy signal. If the MACD line changes direction from upward to downward, this represents a sell signal for you with Exness deposit bonus. Buy or sell signals are confirmed when the MACD line crosses the signal line. Basically, if the MACD line crosses the signal line from down to up, this confirms the corresponding buy signal. Analogously, this means: If the MACD line crosses the signal line from top to bottom, a sell signal is verified. The trend-following indicator Bollinger Bands - or the Bollinger Bands in German - are a chart analysis method developed by John Bollinger in the 1980s. Based on the principles of statistical normal distribution, it is assumed that the current price of a security is more likely to be close to the mean of past prices than far from it. Normal distribution as a basisBollinger's basic considerations were based on the statistical phenomenon of "accumulation in the middle". The "clustering in the middle" means that in normally distributed groups of values, a certain number of values deviate from the mean by only a certain amount with a certain probability. The background to this is that, neglecting isolated outliers, all values lie within a comparatively narrow range. In statistics, this phenomenon is also known as the Gaussian normal distribution. First, the standard deviation is determined, which provides data on how much prices have fluctuated around the 20-day average in the past. Based on this, two curves are calculated by adding the standard deviation to the 20-day average on the one hand and subtracting that from the 20-day average on the other. These resulting sections are called Bollinger bands.
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