Technical Indicators & Overlays

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 İÇİNDEKİLER

1. Technical Indicators ......................................................................................................................................... 1

1.1. Distance From Moving Average ............................................................................................................. 2
1.1.1. What Is the Distance From Moving Average Indicator? ........................................................... 2
1.1.2. Calculation ................................................................................................................................ 3
1.1.3. Interpretation ............................................................................................................................ 3
1.1.3.1. Extreme Levels ......................................................................................................... 3
1.1.3.2. A Word of Caution .................................................................................................... 3
1.1.4. The Bottom Line ....................................................................................................................... 3
1.1.5. Charting with the Distance From Moving Average Indicator .................................................... 3
1.1.6. Scanning for Distance From Moving Average .......................................................................... 4
1.1.6.1. Extreme Distance Above SMA ................................................................................. 5
1.1.6.2. Extreme Distance Below EMA .................................................................................. 5
1.2. Ease of Movement (EMV) ...................................................................................................................... 6
1.2.1. What Is the Ease of Movement (EMV)? ................................................................................... 6
1.2.2. SharpCharts Calculation .......................................................................................................... 6
1.2.3. Interpretating the Ease of Movement ....................................................................................... 8
1.2.4. Confirming Other Signals ....................................................................................................... 10
1.2.5. The Bottom Line ..................................................................................................................... 11
1.2.6. Using with SharpCharts .......................................................................................................... 12
1.2.7. Suggested Scans ................................................................................................................... 13
1.2.7.1. EMV Crosses above Zero....................................................................................... 13
1.2.7.2. EMV Crosses below Zero ....................................................................................... 13
1.3. Force Index .......................................................................................................................................... 14
1.3.1. What Is the Force Index? ....................................................................................................... 14
1.3.2. Calculating the Force Index .................................................................................................... 14
1.3.3. Interpreting the Force Index ................................................................................................... 17
1.3.4. Trend Identification ................................................................................................................. 18
1.3.5. Divergences ........................................................................................................................... 19
1.3.6. Identifying Corrections ............................................................................................................ 20
1.3.7. The Bottom Line ..................................................................................................................... 21
1.3.8. Using with SharpCharts .......................................................................................................... 22
1.3.9. Suggested Scans ................................................................................................................... 23
1.3.9.1. Oversold in Up Trend.............................................................................................. 23
1.3.9.2. Overbought in Down Trend..................................................................................... 23
1.3.9.3. Further Study .......................................................................................................... 24
1.4. Gopalakrishnan Range Index ............................................................................................................... 25
1.4.1. Calculating the Gopalakrishnan Range Index ........................................................................ 25
1.4.2. Charting the Gopalakrishnan Range Index ............................................................................ 25
1.5. High Low Bands ................................................................................................................................... 26
1.5.1. What Are High Low Bands (HLB)? ......................................................................................... 26
1.5.2. How Do You Interpret High Low Bands? ................................................................................ 26
1.6. High Minus Low .................................................................................................................................... 28
1.6.1. What is the High Minus Low Indicator? .................................................................................. 28
1.6.1.1. How Is the High Minus Low Indicator Calculated? ................................................. 28
1.6.2. How Do You Interpret the High Minus Low Indicator?............................................................ 28
1.6.3. Charting the HML Indicator With StockChartsACP ................................................................ 29
1.6.4. A Quick Note on the HML’s Pros and Cons ........................................................................... 30
1.6.5. The Bottom Line ..................................................................................................................... 30
1.7. Highest High Value............................................................................................................................... 31
1.7.1. What is the Highest High Value Indicator? ............................................................................. 31
1.7.2. Charting the Highest High Value Indicator ............................................................................. 31
1.7.3. Trading With HHV .................................................................................................................. 31
1.8. Linear Regression Forecast ................................................................................................................. 32
1.8.1. What Is the Linear Regression Forecast? .............................................................................. 32

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 1.8.2. The Linear Regression Forecast Formula .............................................................................. 32
1.8.3. Chart LRF With StockChartsACP ........................................................................................... 32
1.9. Linear Regression Intercept ................................................................................................................. 35
1.9.1. What Is the Linear Regression Intercept (LR-I)? .................................................................... 35
1.9.2. How To Chart the LR-I Using StockChartsACP ..................................................................... 35
1.10. Linear Regression R2........................................................................................................................... 37
1.10.1. What Is the Linear Regression R2 Indicator? ......................................................................... 37
1.10.2. Charting LR-R2 in StockChartsACP ....................................................................................... 37
1.11. Lowest Low Value ................................................................................................................................ 39
1.11.1. What Is the Lowest Low Value Indicator? .............................................................................. 39
1.11.2. Charting the Lowest Low Value .............................................................................................. 39
1.11.3. Trading With Lowest Low Value ............................................................................................. 39
1.12. Mass Index ........................................................................................................................................... 40
1.12.1. What Is the Mass Index? ........................................................................................................ 40
1.12.2. SharpCharts Calculation ........................................................................................................ 40
1.12.3. Signals .................................................................................................................................... 42
1.12.4. Tweaking ................................................................................................................................ 43
1.12.5. The Bottom Line ..................................................................................................................... 44
1.12.6. Using with SharpCharts .......................................................................................................... 45
1.12.7. Suggested Scans ................................................................................................................... 46
1.12.7.1. Mass Index Bullish Reversal................................................................................... 46
1.12.7.2. Mass Index Bearish Reversal ................................................................................. 46
1.13. MACD (Moving Average Convergence/Divergence) Oscillator ............................................................ 47
1.13.1. What Is the Moving Average Convergence/Divergence Oscillator? ....................................... 47
1.13.2. How Do You Calculate the MACD? ........................................................................................ 48
1.13.3. How Do You Interpret the MACD? ......................................................................................... 48
1.13.3.1. Convergence/Divergence ....................................................................................... 48
1.13.3.2. Oscillator ................................................................................................................. 49
1.13.4. Signal Line Crossovers .......................................................................................................... 49
1.13.5. Centerline Crossovers ............................................................................................................ 51
1.13.6. Divergences ........................................................................................................................... 54
1.13.7. The Bottom Line ..................................................................................................................... 56
1.13.8. Using MACD With SharpCharts ............................................................................................. 57
1.13.9. Suggested Scans ................................................................................................................... 58
1.13.9.1. MACD Bullish Signal Line Cross ............................................................................ 58
1.13.9.2. MACD Bearish Signal Line Cross ........................................................................... 58
1.13.10. MACD FAQs ........................................................................................................................... 59
1.13.11. Additional Resources ............................................................................................................. 59
1.13.11.1. Stocks & Commodities Magazine Articles .................................................... 59

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1.1. Distance From Moving Average

1.1.1. What Is the Distance From Moving Average Indicator?

Distance From Moving Average is a simple indicator that shows how far above or below its moving average a
security is trading. Of course, chartists can easily determine whether the security is trading above or below its
moving average by viewing a chart with that moving average plotted on it. However, this indicator allows
chartists to more easily determine exactly how far above or below the average price is, which can give clues
as to the strength or weakness of the security's move.
In addition, the distance is expressed as a percentage of the moving average value. A $5 difference between
price and its MA on a $20 stock is much more noteworthy than a $5 difference on a $500 stock. Using
percentages for this indicator makes for easier comparison across different timeframes and even different
securities.

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1.1.2. Calculation
The formula for this indicator is quite simple:

(close - MA)/MA

The MA value is subtracted from the close in order to determine the difference between the two values. The
difference is divided by the MA value in order to convert the raw value to a percentage.
Note: Our formula above is not specific about the type of moving average. This indicator can be charted with
either a simple or exponential moving average (SMA or EMA).

1.1.3. Interpretation
Indicator values can fall above or below the zero line, depending on whether price is above or below the
moving average. Zero line crossovers correspond to price/MA crossovers, but those crossovers are relatively
easy to spot on the chart itself.

1.1.3.1. Extreme Levels

The Distance From MA indicator is more often used to look for extreme values on either side of the zero line,
which may indicate a coming change in the trend. A value that has risen far above the zero line may be ripe for
a pullback or correction. Conversely, a value that has fallen far below the zero line may indicate a reaction rally
is coming soon.
While these signals can be estimated just by looking at a chart, expressing the values as a percentage allows
chartists to compare historical levels of a security over time, as well as comparing levels between more than
one security.

Note: Even with the values expressed as a percentage, different securities may have somewhat different
extreme levels. It is recommended to first look at a long-term chart of the security to get an idea of its unique
extreme levels.

1.1.3.2. A Word of Caution

This indicator measures the distance between price and its moving average, but it doesn't take into account
the overall trend of the security. A price that is far above its moving average may be a sign of strength during a
strong uptrend, but in a sideways trading range, it's more likely to indicate a change in trend. It is important to
use other technical analysis techniques to identify the overall trend when interpreting this indicator.

1.1.4. The Bottom Line

The Distance From Moving Average indicator compares the distance between a security's price and its moving
average to identify possible reversals. Zero line crossovers can signal a change in trend. Extreme values
either above or below the zero line can signal that the security is due for a correction or rally.
The extreme levels will vary slightly from security to security, and the interpretation of those signals depends
on the security's overall trend, so this indicator should not be used on its own. Traders should always use the
Distance From Moving Average indicator in conjunction with other indicators and analysis techniques.

1.1.5. Charting with the Distance From Moving Average Indicator

The Distance From Moving Average indicator can be charted on StockChartsACP after installing our free
Advanced Indicator Pack. Please see our StockChartsACP Plug-Ins article in the Support Center for more
information on installing this plug-in.

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Once the plug-in is installed, the Distance From Moving Average indicator can be added from the Chart
Settings panel for your StockChartsACP chart. The indicator can be positioned above, below, or behind the
security's price plot.

By default, the indicator uses a 200-period SMA, but the number of periods and the type of moving average
can be adjusted to meet your technical analysis needs. In addition, the indicator values can be plotted as
either a line chart or a histogram.

1.1.6. Scanning for Distance From Moving Average

StockCharts members can screen for stocks based on the price's difference from the moving average. Below
are some example scans that can be used for signals based on the price's distance from a moving average.
Copy and paste the scan text into the Scan Criteria box in the Advanced Scan Workbench.
Members can also set up alerts to notify them when a signal is triggered for a stock based on the distance of
price from its moving average. Alerts use the same syntax as scans, so the sample scans below can also be
used as a starting point for setting up alerts. Copy the scan text and paste it into the Alert Criteria box in the
Technical Alert Workbench.

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1.1.6.1. Extreme Distance Above SMA

This scan looks for stocks that are trading farther than usual above their 50-day simple moving average on
below-average volume. This may indicate an uptrend that is running out of steam and ripe for a reversal.

[type = stock] AND [country = US]

AND [Daily SMA(20,Daily Volume) > 40000]
AND [Daily SMA(60,Daily Close) > 20]
AND [DistFromSMA(50,Daily Close) > 20]
AND [Daily Volume < Daily SMA(200,Daily Volume)]

1.1.6.2. Extreme Distance Below EMA

This scan looks for stocks that are trading farther than usual below their 50-day exponential moving average
on below-average volume. This may indicate a downtrend that is petering out and ready to turn upward.

[type = stock] AND [country = US]

AND [Daily SMA(20,Daily Volume) > 40000]
AND [Daily SMA(60,Daily Close) > 20]
AND [DistFromEMA(50,Daily Close) < -20]
AND [Daily Volume < Daily SMA(200,Daily Volume)]

Learn More. For more details on the syntax to use for Distance From MA scans, please see our
Scanning Indicator Reference in the Support Center.

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1.2. Ease of Movement (EMV)

1.2.1. What Is the Ease of Movement (EMV)?

Ease of Movement (EMV) is a volume-based oscillator that fluctuates above and below the zero line. It was
developed by Richard Arms to measure the “ease” of price movement.
Arms created EquiVolume charts to visually display price ranges and volume. Ease of Movement takes
EquiVolume to the next level by quantifying the price/volume relationship and showing the results as an
oscillator. Prices are generally advancing with relative ease when the oscillator is in positive territory.
Conversely, prices are declining with relative ease when the oscillator is in negative territory.

1.2.2. SharpCharts Calculation

There are three parts to the EMV formula: distance moved, volume, and the high-low range.
The distance moved compares the current period's midpoint with the prior period's midpoint—the high plus the
low divided by two. Distance moved is positive when the current midpoint is above the prior midpoint and
negative when the current midpoint is below the prior midpoint. Distance moved is shown as the numerator in
the formula below.

Distance Moved = ((H + L)/2 - (Prior H + Prior L)/2)

Box Ratio = ((V/100,000,000)/(H - L))
1-Period EMV = ((H + L)/2 - (Prior H + Prior L)/2) / ((V/100,000,000)/(H - L))
14-Period Ease of Movement = 14-Period simple moving average of 1-period EMV

The other two parts form the Box ratio, which uses volume and the high-low range. EquiVolume charts are
based on volume and the high-low range as well. The Box ratio is the denominator of EMV. Note that volume
is divided by 100,000,000 to keep it relevant with the other numbers.
Relatively low volume and a relatively large high-low range will produce a smaller denominator (Box ratio),
which means the EMV value will be larger because of division by a smaller number. The Box ratio would be
0.50 if V/10000000 equals two and the high-low range equals four. A wide range on low volume implies
relatively easy price movement. In other words, it didn't take much volume to move prices.
A relatively small high-low range on high volume would produce a larger denominator, which means the EMV
value will be smaller. The denominator would be two if V/10000000 equals four and the high-low range equals
two. This implies that price movement was difficult because there was a relatively small high-low range on big
volume.

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Spreadsheet

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1.2.3. Interpretating the Ease of Movement

The example below shows the Nasdaq 100 ETF (QQQ) with the one-period EMV in the lower indicator
window. EquiVolume bars are used because they show only the high-low range for the given period. The blue
arrows show two small EMV values, one slightly positive and the other slightly negative. Volume on both days
was above average, but the high-low range was modest or even small. This means prices had difficulty
moving even though volume was relatively high.

Chart 1

The red arrow shows an EMV value near -3, which is very negative. This is because volume was low and the
high-low range was large. This implies that prices declined with relative ease and there was little or no buying
pressure. The green arrow shows an EMV value near +3. Again, volume was low and the high-low range was
large. This means prices advanced with relative ease and there was little or no selling pressure.

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The chart below shows Jabil Circuit (JBL) with the 14-period Ease of Movement indicator. This is a 14-period
simple moving average of each period's EMV value.

Chart 2

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1.2.4. Confirming Other Signals

Ease of Movement is best used to confirm other indicators or chart analysis. In other words, it is not a
standalone indicator. Keep in mind that the “Distance Moved” portion of the formula is the positive/negative
driver. EMV is generally positive when the midpoint rises and negative when the midpoint falls. This means
EMV will generally rise and fall along with the price of the underlying security. The amount of this rise or fall
depends on the Box ratio. Chartists can use EMV to confirm a breakout on the price chart or a bullish indicator
signal. Conversely, a move into negative territory can be used to confirm a breakdown on the price chart or a
bearish indicator signal.
The example below shows Mosaic (MOS) with a bearish breakdown in early April and a bullish breakout in
mid-June. Prior to the bearish breakdown, EMV deteriorated for two months and dipped into negative territory
in March. With the stock rising and EMV declining in January–February, the advance was becoming more
laborious (difficult). MOS broke support with a decline in early April and EMV confirmed with another dip into
negative territory. After negative readings for most of April and May, EMV improved from late May to early
June with a move into positive territory. The stock also formed a small inverse head-and-shoulders and broke
resistance at $50.

Chart 3

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The second example shows Valero Energy (VLO) with EMV signals confirmed by relative strength index (RSI)
and the price chart. After advancing from January to mid-March, VLO reversed course and broke support at
the end of March. Notice that EMV broke its late February low and moved deep into negative territory at the
end of March. Additionally, RSI broke to its lowest level since early January. The second reversal occurred
when VLO broke resistance in mid-July. EMV began to improve before this breakout and was firmly positive at
the time of the breakout. RSI also confirmed with a break above its April high and a move above $55.

Chart 4

1.2.5. The Bottom Line

Ease of Movement (EMV) combines price direction with volume to create a volume-based momentum
oscillator. Because it is closely tied with price changes, EMV tends to track the price of the underlying security
quite closely. For the most part, EMV is used to confirm signals derived from the price chart or other indicators.
Chartists looking for a smoother EMV line can lengthen the look-back period.

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1.2.6. Using with SharpCharts

Ease of Movement (EMV) can be found in the “indicators” section under the chart. Users can adjust the
settings by changing the numbers in the “parameters” box. The indicator can then be positioned “behind price,”
“above” the main window or “below” the main window. It helps to change the color when placing it behind the
price. Chartists can also add a moving average using the “advanced” indicator options.

Chart 5

Chart 6

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1.2.7. Suggested Scans

1.2.7.1. EMV Crosses above Zero

This simple scan searches for stocks where the EMV crossed from negative territory to positive territory.

[type = stock] AND [country = US]

AND [Daily SMA(20,Daily Volume) > 100000]
AND [Daily SMA(60,Daily Close) > 20]
AND [Daily EMV(14) crosses 0]

1.2.7.2. EMV Crosses below Zero

This simple scan searches for stocks where the EMV crossed from positive territory to negative territory.

[type = stock] AND [country = US]

AND [Daily SMA(20,Daily Volume) > 100000]
AND [Daily SMA(60,Daily Close) > 20]
AND [0 crosses Daily EMV(14)]

For more details on the syntax to use for Ease of Movement scans, please see our Scanning Indicator
Reference in the Support Center.

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1.3. Force Index

1.3.1. What Is the Force Index?

The Force Index is an indicator that uses price and volume to assess the power behind a move or identify
possible turning points. Developed by Alexander Elder, the Force Index was introduced in his classic book,
Trading for a Living. According to Elder, there are three essential elements to a stock's price movement:
direction, extent and volume. The Force Index combines all three as an oscillator that fluctuates in positive and
negative territory as the balance of power shifts. The Force Index can be used to reinforce the overall trend,
identify playable corrections or foreshadow reversals with divergences.

1.3.2. Calculating the Force Index

Force Index(1) = {Close (current period) - Close (prior period)} x Volume

Force Index(13) = 13-period EMA of Force Index(1)

Calculation of the 1-period Force Index is straightforward. Simply subtract the prior close from the current
close and multiply by volume. The Force Index for more than one day is simply an exponential moving
average of the 1-period Force Index. For example, a 13-period Force Index is a 13-period EMA of the 1-period
Force Index values for the last 13 periods.
Three factors affect Force Index values. First, the Force Index is positive when the current close is above the
prior close. The Force Index is negative when the current close is below the prior close. Second, the extent of
the move determines the volume multiplier. Bigger moves warrant larger multipliers that influence the Force
Index accordingly. Small moves produce small multipliers that reduce the influence. Third, volume plays a key
role. A big move on big volume produces high Force Index values. Small moves on low volume produce
relatively low Force Index values. The table below shows the Force Index calculations for Pfizer (PFE). Line 27
marks the biggest move (+84 cents) and the biggest volume (162,619). This combination produces the biggest
Force Index value on the table (136,600).

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Table 1 - Force Index

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The chart above shows the Force Index in action. Notice how the 1-period Force Index fluctuates above/below
the zero line and looks quite jagged. Elder recommends smoothing the indicator with a 13-period EMA to
reduce the positive-negative crossovers. Chartists should experiment with different smoothing periods to
determine what best suits their analytical needs.

Chart 1 - Force Index

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1.3.3. Interpreting the Force Index

As noted above, there are three elements to the Force Index. First, there is either a positive or negative price
change. A positive price change signals that buyers were stronger than sellers, while a negative price change
signals that sellers were stronger than buyers. Second, there is the extent of the price change, which is simply
the current close less the prior close. The “extent” shows us just how far prices moved. A big advance shows
strong buying pressure, while a big decline shows strong selling pressure. The third and final element is
volume, which, according to Elder, measures commitment. Just how committed are the buyers and sellers? A
big advance on heavy volume shows a strong commitment from buyers. Likewise, a big decline on heavy
volume shows a strong commitment from sellers. The Force Index quantifies these three elements into one
indicator that measures buying and selling pressure.

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1.3.4. Trend Identification

The Force Index can be used to reinforce or determine the trend. Said trend, whether short-, medium- or long-
term, is dependent on the Force Index parameters. While the default Force Index parameter is 13, chartists
can use higher or lower numbers for more or less smoothing, respectively. The chart below shows Home
Depot with 100- and 13-day Force Indexes. Notice how the 13-day Force Index is more volatile and jagged
while the 100-day Force Index is smoother and crosses the zero line fewer times. In this regard, the 100-day
Force Index can be used to determine the medium- or long-term trend. Notice how a resistance breakout on
the price chart corresponds to a resistance breakout on the 100-day Force Index. The 100-day Force Index
moved into positive territory and broke resistance in mid-February. The indicator remained positive during the
entire uptrend and turned negative in mid-May. The early June support break on the price chart was confirmed
with a support break in the Force Index.

Chart 2 - Force Index

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1.3.5. Divergences
Bullish and bearish divergences can alert chartists of a potential trend change. Divergences are classic signals
associated with oscillators. A bullish divergence forms when the indicator moves higher as the security moves
lower. The indicator is not confirming weakness in price; this can foreshadow a bullish trend reversal. A
bearish divergence forms when the indicator moves lower as the security moves higher. Even though the
security is moving higher, the indicator shows underlying weakness by moving lower. This discrepancy can
foreshadow a bearish trend reversal.
Confirmation is an important part of bullish and bearish divergences. Even though the divergences signal
something is amiss, confirmation from the indicator or price chart is needed. A bullish divergence can be
confirmed with the Force Index moving into positive territory or a resistance breakout on the price chart. A
bearish divergence can be confirmed with the Force Index moving into negative territory or a support break on
the price chart. Chartists can also use candlesticks, moving average crosses, pattern breaks and other forms
of technical analysis for confirmation.

Chart 3 - Force Index

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The chart above shows Best Buy (BBY) with the Force Index (39) sporting a series of divergences. The green
lines show bullish divergences and the red lines show bearish divergences. A bullish divergence is confirmed
when the Force Index (39) crosses into positive territory (green dotted lines). A bearish divergence is
confirmed when the Force Index (39) crosses into negative territory (red dotted lines). Chartists can also use
trend line breaks on the price chart for confirmation.
This chart shows two versions of the Force Index. The Force Index (13) captures short-term fluctuations and is
more sensitive. The Force Index (39) captures medium-term fluctuations and is smoother. The 39-day Force
Index produces fewer and longer-lasting zero line crossovers and these crossovers last longer. There is no
right or wrong answer for these settings; it all depends on personal trading objectives, time horizon and
analytical style.

1.3.6. Identifying Corrections

The Force Index can be used in conjunction with a trend following indicator to identify short-term corrections
within that trend. A pullback from overbought levels represents a short-term correction within an uptrend. An
oversold bounce represents a short-term correction within a downtrend. Yes, corrections can be up or down,
depending on the direction of the bigger trend. Alexander Elder recommends using a 22-day EMA for trend
identification and a 2-day Force Index to identify corrections. The trend is up when the 22-day EMA is moving
higher, which means the 2-day Force Index would be used to identify short-term pullbacks for buying. The
trend is down when the 22-day EMA is moving lower, which means the 2-day Force Index would be used to
identify short-term bounces for selling. This is an aggressive strategy best suited for active traders. The
timeframe can be adjusted by using a longer moving average and timeframe for the Force Index. For example,
medium-term traders might experiment with a 100-day EMA and 10-day Force Index.
There are two schools of thought regarding the correction play. Traders can either act as soon as the
correction is evident or act when there is evidence the correction has ended. Let's look at an example with the
22-day EMA and 2-day Force Index. Keep in mind that this is designed to identify very short corrections within
a bigger trend. The chart below shows Texas Instruments (TXN) with the 22-day EMA turning up in mid-
September.

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Chart 4 - Force Index

With the 22-day EMA rising, traders are looking for very short-term pullbacks when the 2-day Force Index
turns negative. Traders can act when the Force Index turns negative or wait for it to move back into positive
territory. Acting when negative may improve the reward-to-risk ratio, but the correction could extend a few
more days. Waiting for the Force Index to turn positive again shows some strength that could signal the
correction has ended. The green dotted lines show when the 2-day Force Index turns negative.

1.3.7. The Bottom Line

The Force Index uses both price and volume to measure buying and selling pressure. The price portion covers
the trend, while the volume portion determines the intensity. At its most basic, chartists can use a long-term
Force Index to confirm the underlying trend. The bulls have the edge when the 100-day Force Index is
positive. The bears have the edge when the 100-day Force Index is negative. Armed with this information,
traders can then look for short-term setups in harmony with the larger trend, such as bullish setups in a larger
uptrend or bearish setups within a larger downtrend. As with all indicators, traders should use the Force Index
in conjunction with other indicators and analysis techniques.

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1.3.8. Using with SharpCharts

The Force Index is available as an indicator for SharpCharts. Once selected, users can place the indicator
above, below or behind the underlying price plot. Placing the Force Index directly on top of the price plot
accentuates the movements relative to price action of the underlying security. This can make it easier to
identify bullish and bearish divergences. Chartists can click “advanced options” to add a moving average,
horizontal line or another indicator to the Force Index.

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SharpCharts - Force Index

1.3.9. Suggested Scans

1.3.9.1. Oversold in Up Trend

This scan searches for stocks where the Force Index (100) is in positive territory and the Commodity Channel
Index (20) is oversold. A positive Force Index establishes an overall uptrend. An oversold CCI identifies a
pullback within this uptrend. This scan is meant as a starting point. Further scrutiny and adjustment is advised.

[type = stock] AND [country = US]

AND [Daily SMA(20,Daily Volume) > 100000]
AND [Daily SMA(60,Daily Close) > 20]
AND [Daily FORCE(100) > 0]
AND [Daily CCI(20) < -100]

1.3.9.2. Overbought in Down Trend

This scan searches for stocks where the Force Index (100) is in negative territory and the Commodity Channel
Index (20) is overbought. A negative Force Index establishes an overall downtrend. An overbought CCI
identifies a corrective bounce within this downtrend. This scan is meant as a starting point. Further scrutiny
and adjustment is advised.

[type = stock] AND [country = US]

AND [Daily SMA(20,Daily Volume) > 100000]
AND [Daily SMA(60,Daily Close) > 20]
AND [Daily FORCE(100) < 0]
AND [Daily CCI(20) > 100]

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Learn More. For more details on the syntax to use for Force Index scans, please see our Scanning
Indicator Reference in the Support Center.

1.3.9.3. Further Study

Alexander Elder's Come Into My Trading Room covers trading from A to Z. In addition to technical analysis
and trading systems, readers will learn trading psychology, risk control, money management and record
keeping.

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1.4. Gopalakrishnan Range Index

Some investment assets are more volatile than others. Before trading or investing in an asset, it helps to know
if it'll take some time before reaching your profit target or if it will be a shorter-term trade. The Gopalakrishnan
Range Index (or GAPO) determines the range of price moves for different assets and identifies which
investments are more volatile and which tend to move in slow and consistent trends.

1.4.1. Calculating the Gopalakrishnan Range Index

The indicator takes the log of the difference between the highest high and lowest low of a specific period and
divides it by the log of the chosen period. The formula is as follows:
GAPO=[Log(Highest highn−lowest lown)]/Log(n)

1.4.2. Charting the Gopalakrishnan Range Index

Say you're trying to decide whether to protect your portfolio by investing in the Financial Select Sector SPDR
ETF (XLF), Utilities Select Sector SPDR ETF (XLU), and iShares 1–3 Year Treasury Bond ETF (SHY).
However, the stock market still seems to favor mega tech stocks. Wouldn't investing in a high-flying stock like
Nvidia (NVDA) make more sense?
In StockChartsACP, under Chart Settings, add the Gopalakrishnan Range Index from the Standard
Indicators list.
The chart below shows the indicator in the chart of SHY. Note that GAPO is at -0.25 and over the last six
months, the highest value was just slightly above zero.

The Gopalakrishnan Range Index applied to iShares 1–3 year Treasury Bond ETF (SHY)
If you're looking to take advantage of a market where mega tech stocks are moving higher quickly and you
decided to invest in SHY, you should be prepared to wait for a very long time before making an acceptable
investment return.

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1.5. High Low Bands

1.5.1. What Are High Low Bands (HLB)?

The High Low Bands (HLB) indicator helps traders identify and analyze price trends and volatility. It's made up
of three lines: an upper band, a middle band, and a lower band. HLB is based on the triangular moving
average—a “smoothed” moving average using a particular calculation that gives greater weight to the most
recent price data.
Three lines are derived from this triangular moving average—one above and one below the original average,
which appears in the middle. The distance between the upper and lower bands from the middle band is
adjusted by a specific percentage according to your preference. The StockChartsACP’s default HLB
percentage is set to 5.

1.5.2. How Do You Interpret High Low Bands?

There are several ways in which you can interpret High Low Bands.

The High Low Bands indicator can identify trend direction, overbought/oversold conditions, support and
resistance levels, and volatile trading conditions.

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Trend Direction. If the price consistently touches or exceeds the upper band, the indicator suggests a strong
uptrend. Conversely, if the price persistently touches or falls below the lower band, it indicates a strong
downtrend.

Overbought/Oversold Conditions. Prices near the upper band might indicate an overbought condition.
Prices near the lower band might indicate an oversold condition. It’s best to check these readings with other
indicators that interpret potential overbought/oversold readings (such as the Relative Strength Index or the
Stochastic Oscillator).

Support and Resistance. The upper and lower bands can sometimes serve as dynamic support and
resistance levels, with the middle band serving as a mean reversion level toward which prices may gravitate.

Volatility. Although the bands don't dynamically adjust to volatility like Bollinger Bands, High Low Bands can
still be a visual reference to gauge price volatility.

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1.6. High Minus Low

1.6.1. What is the High Minus Low Indicator?

The High Minus Low (HML) indicator is a technical analysis tool that measures the difference between a
financial asset's highest and lowest prices per day or session. This indicator plots these differences over time
and displays them as a line chart. The HML indicator is used primarily as a volatility gauge.
A high HML value illustrates range expansion as it visually represents a more extensive range between high
and low prices. Conversely, a low HML value points to a low-volatility market in which smaller movements are
more frequent, regardless of trending or non-trending environments.

1.6.1.1. How Is the High Minus Low Indicator Calculated?

The calculation for HML is straightforward: you subtract the low price from the high price of a stock or asset for
a given session.
HML=HighPrice−LowPrice
For instance, if a stock’s daily high was at $60 and its low was $45, the HML would be $15.
Interpreting the value of any HML level depends on the stock's average range of volatility. This can be gauged
by observing the value of all HML levels over time.

1.6.2. How Do You Interpret the High Minus Low Indicator?

Interpreting the HML indicator involves analyzing the values it produces. The value of the information and how
you turn this into an actionable signal will vary according to your approach.
The following are the basic levels of interpretation:

High HML Value. A significant difference between the high and low prices suggests high market volatility,
potentially indicating increased trading activity and interest in the asset. Some traders might interpret this as a
signal for potential market turbulence or that a “spike” in volatility might suggest the onset of a more significant
directional move.

Low HML Value. A small price range indicates lower volatility, suggesting more stable market conditions and
potentially less trading interest. If prices are in consolidation, it can also mean that the market is poised for a
sizeable explosive move toward a given direction.

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Take a look at the chart below.

High Minus Low indicator remains under 0.40 most of the time, although occasionally you'll see a spike.
Note that the HML range is largely under 0.40 for most daily sessions (blue dotted line). The range will
occasionally expand, but it typically won’t deviate too far above 0.40.
Now, look at the two HML spikes (red circles). The first spike led to a short-term rally that fizzled into a low-
volatility downtrend. In March 2024, an uptrend resumed, but the volatility remained low. In April 2024, there
was a second spike, which reversed the uptrend.
Sometimes, range expansion precedes a change in trend. Sometimes, changes in trend will occur in the
absence of any significant range expansion.
The following are a few other ways to use the HML indicator.
Volatility analysis. By tracking the fluctuations in the HML values, you can identify periods of higher or lower
market volatility, which can inform your decisions about risk management and investment timing.
Timing the market. Low volatility periods (low HML values) might signal that the market is poised for a large-
range expansion. Range expansions can present an opportunity to enter the market depending on your trading
strategy. In this case, it would help to use other indicators to fine-tune your setup and entry.

1.6.3. Charting the HML Indicator With StockChartsACP

To add the High Minus Low indicator in StockChartsACP, first enter the ticker symbol for the stock, exchange-
traded fund, or index you want to analyze.
From Chart Settings, select High Minus Low from the list of Standard Indicators.
To change the indicator parameters, click the settings icon next to the indicator name displayed in the top of
the navigation bar. This allows you to change Line Style, Opacity, and Colors. You can also add an overlay to
the indicator.

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1.6.4. A Quick Note on the HML’s Pros and Cons

As far as the pros are concerned, the High Minus Low indicator is simple to calculate and easy to understand.
It provides a clear illustration of a stock’s market volatility. Additionally, it’s a versatile indicator applicable to
various asset types, from stocks and bonds to commodities and cryptocurrencies.
Now, the cons. The HML indicator has limitations. It doesn’t provide directional information about price
movements, nor will it indicate the beginning or end of a trend. HML spikes are direction-neutral, and trends
can happen in low- and high-volatility environments. Additionally, the HML offers no insight into market
sentiment or buying pressure, which are crucial for understanding the motivations behind the price changes.

1.6.5. The Bottom Line

The High Minus Low (HML) indicator is a straightforward volatility indicator. Its ease of use and clarity in
demonstrating volatility make it open to different angles of interpretation and use. However, the HML does
have its limitations. So, to enhance its effectiveness, consider combining it with other indicators to provide a
more comprehensive view of market conditions and potential trends.

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1.7. Highest High Value

1.7.1. What is the Highest High Value Indicator?

The Highest High Value indicator plots the highest price reached in a specific number of periods. The default
period is 14 but you can change that in the StockChartsACP platform.

1.7.2. Charting the Highest High Value Indicator

The Highest High Value is plotted as an overlay on the price chart.
 In the StockChartsACP platform, enter a symbol.
 Scroll down in the Add Indicator section and select Highest High Value.
 Under the HHV settings, select the number of periods to use, line style, opacity, color, and an overlay for
the HHV.
 The HHV is plotted as a line that touches the highest high values of the specified periods.

1.7.3. Trading With HHV

Since the Highest High Value represents the highest high observed over several periods, you could use it to
make entry and exit decisions. For example, if price breaks through the upper band, it could indicate that price
will continue moving higher if the Highest High Value continues to move higher. If the indicator flattens out and
starts turning lower, it could indicate an overbought condition. This could be an alert to exit a long position.
To help determine an exit point, it helps to add the Lowest Low Value.

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1.8. Linear Regression Forecast

1.8.1. What Is the Linear Regression Forecast?

The Linear Regression Forecast (LRF) is based on the premise of linear regression, a statistical tool used to
forecast stock price values using past values. LRF can be applied to determine the underlying trend and when
prices are overextended to the upside or downside.
LRF uses the least squares method, a straight line plotted through prices that best fit the price data. This
minimizes the distance between price and the resulting trendline. Instead of being plotted as a straight line, the
LRF is a moving series that plots the forecasted value of the derived trend line for each data point. As a result,
it follows the stock market like a moving average. The last point of the trendline is the forecasted value.

1.8.2. The Linear Regression Forecast Formula

We won't get into the details of the formula behind the LRF indicator. In a nutshell, the formula used to
calculate LRF is based on the slope of a line: y = mx + b. You may remember this from high school algebra.
The slope (m) and the intercept (b) values will find the best-fitting line.

1.8.3. Chart LRF With StockChartsACP

Adding the LRF indicator in StockChartsACP is a snap.

How to add the Linear Regression Forecast indicator

1) Enter the symbol for the stock, index, or exchange-traded fund you want to analyze.
2) From Chart Settings, scroll down the list of Standard Indicators.
3) Select Linear Regression Forecast.

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Want to change the color, style, or any other indicator parameter? Select the settings icon next to the indicator
and choose your parameters.

Changing Linear Regression Forecast parameters

Periods. The default setting is 14, but you can change it to any number of bars you wish to use to calculate
LRF.
Calculated From. There are various choices here—solid, solid (thin), solid (thick), dashed, etc. Take your
pick. Select the value you want to use for calculations. This can be the open, high, low, close, (H + L)/2, (H + L
+ C)/3, (H + L + 2C)/4, (O + H + L + C)/4
Line Style. You have a few choices here—solid, solid (thin), solid (thick), dashed, etc. Take your pick.
Opacity. Use the slider to select the transparency of LRF.
Colors. Choose the color for LRF that you prefer to view on your chart.
Add Overlays. Sometimes, additional overlays can help confirm trend direction. This dropdown menu offers
several overlays to choose from.

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The chart below shows an example of a StockChartsACP chart with the LRF indicator.

The Linear Regression Forecast indicator in action.

So, how can the LRF indicator help you invest or trade? The last point forecasts price direction. In the chart
above, the short-term trend is up. If the stock price continues moving upward, you can add other indicators
such as moving averages to confirm the trend’s strength and/or momentum. This can help you decide whether
to buy, hold, or sell an asset.

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1.9. Linear Regression Intercept

1.9.1. What Is the Linear Regression Intercept (LR-I)?

The Linear Regression Intercept (LR-I) is similar to the Linear Regression Forecast (LRF) in that it's based on
the linear regression technique. The indicator can be used to identify underlying trends and when prices are
overextended to the upside and downside.
The LR-I is a moving linear regression that plots the y-axis intercept for the derived trendline at each price
point. Since the intercept is the origination point of the regression, the LR-I appears to be an offset moving
average.

1.9.2. How To Chart the LR-I Using StockChartsACP

Once you’ve logged in to your StockCharts account, bring up the StockChartsACP Workbench. From Chart
Settings, select Linear Regression Intercept from the Standard Indicators list.

How to add the LR-I indicator to StockChartsACP

1) Enter the symbol for the stock, index, or exchange-traded fund you want to analyze.
2) From Chart Settings, scroll down the list of Standard Indicators.
3) Select Linear Regression Intercept.
To change the color, style, or other indicator parameter settings for LR-I, select the settings icon next to the
indicator and choose your parameters.
Periods. The default setting is 14, but you can change it to any number of bars you wish to use to calculate
LR-I.
Calculated From. There are various choices here—solid, solid (thin), solid (thick), dashed, etc. Take your
pick. Select the value you want to use for calculations. This can be the open, high, low, close, (H + L)/2, (H + L
+ C)/3, (H + L + 2C)/4, (O + H + L + C)/4;
Line Style. You have a few choices here—solid, solid (thin), solid (thick), dashed, etc. Take your pick.
Opacity. Use the slider to select the transparency of LR-I.
Colors. You can choose the color for LR-I that you prefer to view on your chart.
Add Overlays. Sometimes, additional overlays can help confirm trend direction. This dropdown menu offers
several overlays to choose from.

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The chart below shows a StockChartsACP chart with the LR-I (blue line) and LRF (red line) indicators.

Combining Linear Regression Intercept and Linear Regression Forecast can help identify bullish and bearish
trends.

The LRF shows trend direction earlier than LR-I, but when LRF crosses above LR-I, it's a stronger
confirmation of the change in trend direction. You can use the LR-I and LRF indicators in any time frame.
Short-term traders find them especially useful in intraday charts.

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1.10. Linear Regression R2

1.10.1. What Is the Linear Regression R2 Indicator?

If you're a trend trader, you want to trade when price is trending. If you prefer to get in and out of trades more
frequently than a trend trader, you'd prefer to trade in a non-trending market.
The Linear Regression R2 (LR-R2) is a moving linear regression that plots the R-squared value of a linear
regression over a specified time. It's an oscillator that moves between zero and one. When it's at zero, it
indicates a lack of trend and when it's at one, it indicates a strong trend.

1.10.2. Charting LR-R2 in StockChartsACP

Select Linear Regression R2 from the Standard Indicators list. The indicator will be plotted in a different
panel (see chart below). The Linear Regression R2 oscillator in the daily chart of the SPDR S&P 500 ETF
(SPY) is at 0.49, which means there's about 50% of the price action is based on a linear relationship and a
50% chance that price action is related to events such as interest rate changes, inflation fears, or general
economic fundamentals.

Applying Linear Regression R2 in StockChartsACP.

To change the color, style, or other indicator parameter settings for LR-R2, select the settings icon next to the
indicator and choose your parameters.
Periods. The default setting is 14, but you can change it to any number of bars you wish to use to calculate
LRF.
Calculated From. There are various choices here—solid, solid (thin), solid (thick), dashed, etc. Take your
pick. Select the value you want to use for calculations. This can be the open, high, low, close, (H + L)/2, (H + L
+ C)/3, (H + L + 2C)/4, (O + H + L + C)/4;
Line Style. You have a few choices here—solid, solid (thin), solid (thick), dashed, etc. Take your pick.
Opacity. Use the slider to select the transparency of LR-R2.
Colors. You can choose the color for LR-R2 that you prefer to view on your chart.

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Add Overlays. Sometimes, additional overlays can help confirm trend direction. This dropdown menu offers
several overlays to choose from.

LR-R2 can be used with indicators such as the Stochastic Oscillator or the Relative Strength Index (RSI). The
chart below adds the Fast Stochastic Oscillator in a separate panel. On the chart, you see that between April
22 and May 1, 2024 the trend strength had declined from 0.8 to 0. After that decline, the LR-R2 started rising,
and the %K line of the Fast Stochastic Oscillator crossed over the %D line. In addition, the Fast Stochastic
Oscillator moved into overbought territory.

Linear Regression R2 with Full Stochastics and LRF.

The Linear Regression Forecast indicator was overlaid on the price chart to add additional confirmation. Note
that price crossed above the LRF. All three indicators confirm the start of an uptrend, which means you could
potentially open a long position in SPY.

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1.11. Lowest Low Value

1.11.1. What Is the Lowest Low Value Indicator?

The lowest low value is the lowest low observed over a number of periods. The default period is set to 14, but
that parameter can easily be changed in StockChartsACP.

1.11.2. Charting the Lowest Low Value

The Lowest Low Value indicator is plotted as an overlay on the price chart.
In StockChartsACP, enter a symbol.
Scroll down in the Add Indicator section and select Lowest Low Value.
Under Lowest Low Value settings, select the number of periods to use, the line style, opacity, color, and an
overlay for the Lowest Low Value.
The Lowest Low Value is plotted as a line that touches the lowest low values of the number of periods you set
as your parameter.

1.11.3. Trading With Lowest Low Value

If price moves below or touches the Lowest Low Value indicator it could be an indication of a trend reversal.
However, the indicator can continue to go lower in a stair-step pattern. Since the indicator has a lookback
period of a specific number of days, it can be somewhat lagging.

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1.12. Mass Index

1.12.1. What Is the Mass Index?

Developed by Donald Dorsey, the Mass Index uses the high-low range to identify trend reversals based on
range expansions. In this sense, the Mass Index is a volatility indicator that does not have a directional bias.
Instead, the Mass Index identifies range bulges that can foreshadow a reversal of the current trend.

1.12.2. SharpCharts Calculation

There are four parts involved in the Mass Index calculation:

Single EMA = 9-period exponential moving average (EMA) of the high-low differential
Double EMA = 9-period EMA of the 9-period EMA of the high-low differential
EMA Ratio = Single EMA divided by Double EMA
Mass Index = 25-period sum of the EMA Ratio

Chart 1

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The calculation is fairly straightforward. First, the Single EMA provides the average for the high-low range.
Second, the Double EMA provides a second smoothing of this volatility measure. Using a ratio of these two
exponential moving averages normalizes the data series. This ratio shows when the Single EMA becomes
large relative to the Double EMA. The final step, a 25-period summation, acts like a moving average to further
smooth the data series. Overall, the Mass Index rises as the high-low range widens and falls as the high-low
range narrows. A spreadsheet example is shown below.

Spreadsheet 1

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Some of the spreadsheet values are off by a penny because the exponential moving average calculation
extends back less than three months. Calculations in SharpCharts extend back two years, which makes the
exponential moving average calculation more robust.

1.12.3. Signals
Donald Dorsey looked for “reversal bulges” to signal a trend reversal. According to Dorsey, a bulge occurs
when the Mass Index moves above 27. This initial bulge does not complete the signal, however. Dorsey
waited for this bulge to reverse with a move back below 26.50. Once the reversal bulge is complete, traders
should use other analysis techniques to determine the direction of the next move. Ideally, a downtrend
followed by a reversal bulge would suggest a bullish trend reversal. Conversely, an uptrend followed by a
reversal bulge would suggest a bearish trend reversal.

Chart 2

The example above shows Chipotle with the Mass Index producing two reversal bulges over a 12-month
period. In both cases, the trend was up when the Mass Index moved above 27, which means a bearish
reversal was expected. The first signal foreshadowed a trading range. The second signal foreshadowed a
sharp decline. Chartists looking for signals will most likely have to relax Dorsey's requirements for the reversal
bulge because the Mass Index rarely exceeds 27. It takes exceptional volatility to push the index above this
level.

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1.12.4. Tweaking
Chartists can lower the threshold for a reversal bulge to generate more signals. One size does not fit all when
it comes to volatility. In other words, chartists may need to compare Mass Index levels over time to identify
historical highs and lows. A move that nears the high end of the historical range would suggest a volatility
bulge that could foreshadow a reversal.
The chart below shows International Paper with the Mass Index moving above 26 twice. Even though the
Mass Index touched 27 in August 2011, the 26 level seems more appropriate for a reversal bulge. Additionally,
keep in mind that August 2011 was an extremely volatile period for the entire stock market and this reading
looks like an outlier. The trend was down when the Mass Index moved above 26 in August 2011 and May
2012. This suggested that a bullish reversal would follow and chartists could then use other analytical
techniques to identify such a reversal.

Chart 3

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The bottom indicator is the TRIX oscillator, which is the one-period rate-of-change for the triple smoothed
exponential moving average. The TRIX is like the smoothed version of MACD. Once the reversal bulge is in
place and the trading bias established, chartists can use the TRIX to generate a directional signal. Because
the trends were down when these reversal bulges occurred, the trading bias was bullish and only bullish
signals were considered. The green arrows show when the TRIX moved above its signal line to signal an
upturn in prices.

1.12.5. The Bottom Line

The Mass Index uses the high-low differential to provide a smoothed volatility measure. The indicator typically
fluctuates in the mid-20s; readings near the high end of the historical range suggest increasing volatility, which
increases the chances for a trend reversal. Although Dorsey set the bulge threshold at 27, chartists should
consider a lower threshold to produce more signals. Keep in mind that the Mass Index does not have a
directional bias. The directional bias depends on the existing trend. As with all indicators, chartists should use
other analysis techniques to complement the Mass Index.

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1.12.6. Using with SharpCharts

The Mass Index can be found in the “indicators” section under the chart. Users can adjust the summation
periods by changing the number in the “parameters” box. The indicator can then be positioned “behind price,”
“above” the main window or “below” the main window. Chartists can add a horizontal line by using the
“advanced” options. This line can be used to set the thresholds for the reversal bulge signal.

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1.12.7. Suggested Scans

1.12.7.1. Mass Index Bullish Reversal

This scan searches for stocks that are trading below their 200-day moving average to define a long-term
downtrend. A bullish reversal is identified when Mass Index moves below 26.5.

[type = stock] AND [country = US]

AND [Daily SMA(20,Daily Volume) > 40000]
AND [Daily SMA(60,Daily Close) > 20]
AND [Daily Close < Daily SMA(200,Daily Close)]
AND [26.5 x Daily MASS(25)]

1.12.7.2. Mass Index Bearish Reversal

This scan searches for stocks that are trading above their 200-day moving average to define a long-term
uptrend. A bearish reversal is identified when Mass Index moves below 26.5.

[type = stock] AND [country = US]

AND [Daily SMA(20,Daily Volume) > 40000]
AND [Daily SMA(60,Daily Close) > 20]
AND [Daily Close > Daily SMA(200,Daily Close)]
AND [26.5 x Daily MASS(25)]

Learn More. For more details on the syntax for Mass Index scans, please see our Scanning Indicator
Reference in the Support Center.

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1.13. MACD (Moving Average Convergence/Divergence) Oscillator

Learn how the MACD (Moving Average Convergence/Divergence) oscillator enhances technical analysis by
measuring momentum and trend direction. Discover its application for informed trading decisions.

1.13.1. What Is the Moving Average Convergence/Divergence Oscillator?

Developed by Gerald Appel in the late seventies, the Moving Average Convergence/Divergence oscillator
(MACD), due to its simplicity and general effectiveness, is one of the most popular momentum indicators. The
MACD turns two trend-following indicators, moving averages, into a momentum oscillator by subtracting the
longer moving average from the shorter one. As a result, the MACD offers the best of both worlds: trend
following and momentum. The MACD fluctuates above and below the zero line as the moving averages
converge, cross and diverge. Traders can look for signal line crossovers, centerline crossovers and
divergences to generate signals. Because the MACD is unbounded, it is not particularly useful for identifying
overbought and oversold levels.

Note: MACD can be pronounced as either “Mac-Dee” or “M-A-C-D.”

Below is an example chart with the MACD indicator in the lower panel.

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1.13.2. How Do You Calculate the MACD?

MACD Line: (12-day EMA - 26-day EMA)

Signal Line: 9-day EMA of MACD Line
MACD Histogram: MACD Line - Signal Line

The MACD line is the 12-day Exponential Moving Average (EMA) less the 26-day EMA. Closing prices are
used for these moving averages. A nine-day EMA of the MACD line is plotted with the indicator, which acts as
a signal line and identifies reversals. The MACD Histogram represents the difference between MACD and its
nine-day EMA, the signal line. The histogram is positive when the MACD line is above its signal line and
negative when the MACD line is below its signal line.
The values of 12, 26, and 9 are the typical settings used with the MACD, though other values can be
substituted depending on your trading style and goals.

1.13.3. How Do You Interpret the MACD?

1.13.3.1. Convergence/Divergence
As its name implies, the MACD is all about the convergence and divergence of the two moving averages.
Convergence occurs when the moving averages move towards each other. Divergence occurs when the
moving averages move away from each other. The shorter moving average (12-day) is faster and responsible
for most MACD movements. The longer moving average (26-day) is slower and less reactive to price changes
in the underlying security.

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1.13.3.2. Oscillator
The MACD line oscillates above and below the zero line, also known as the centerline. These crossovers
signal that the 12-day EMA has crossed the 26-day EMA. The direction, of course, depends on the direction of
the moving average cross. Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positive
values increase as the shorter EMA diverges further from the longer EMA. This means upside momentum is
increasing. Negative MACD values indicate the 12-day EMA is below the 26-day EMA. Negative values
increase as the shorter EMA diverges further below the longer EMA. This means downside momentum is
increasing.

StockCharts MACD interpretation

In the example above, the golden shaded area shows the MACD line in negative territory as the 12-day EMA
trades below the 26-day EMA. In mid-February, the MACD moved further into negative territory as the 12-day
EMA diverged further from the 26-day EMA. The red area highlights a period of positive MACD values, when
the 12-day EMA was above the 26-day EMA.

1.13.4. Signal Line Crossovers

Signal line crossovers are the most common MACD signals. The signal line is a 9-day EMA of the MACD line.
As a moving average of the indicator, it trails the MACD and makes it easier to spot MACD turns. A bullish
crossover occurs when the MACD turns up and crosses above the signal line. A bearish crossover occurs
when the MACD turns down and crosses below the signal line. Crossovers can last a few days or a few
weeks, depending on the strength of the move.
Due diligence is required before relying on these common signals. Signal line crossovers at positive or
negative extremes should be viewed with caution. Even though the MACD does not have upper and lower
limits, chartists can estimate historical extremes with a simple visual assessment. It takes a strong move in the
underlying security to push momentum to an extreme. Even though the move may continue, momentum is
likely to slow and this will usually produce a signal line crossover at the extremities. Volatility in the underlying
security can also increase the number of crossovers.
The chart below shows IBM with its 12-day EMA (green), 26-day EMA (red) and the 12,26,9 MACD in the
indicator window. There were eight signal line crossovers in six months: four up and four down. There were

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some good signals and some bad signals. The yellow area highlights a period when the MACD line surged
above 2 to reach a positive extreme. There were two bearish signal line crossovers in April and May, but IBM
continued trending higher. Even though upward momentum slowed after the surge, it was still stronger than
downside momentum in April-May. The third bearish signal line crossover in May resulted in a good signal.

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1.13.5. Centerline Crossovers

Centerline crossovers are the next most common MACD signals. A bullish centerline crossover occurs when
the MACD line moves above the zero line to turn positive. This happens when the 12-day EMA of the
underlying security moves above the 26-day EMA. A bearish centerline crossover occurs when the MACD
moves below the zero line to turn negative. This happens when the 12-day EMA moves below the 26-day
EMA.
Centerline crossovers can last a few days or a few months, depending on the strength of the trend. The MACD
will remain positive as long as there is a sustained uptrend. The MACD will remain negative when there is a
sustained downtrend. The next chart shows Pulte Homes (PHM) with at least four centerline crosses in nine
months. The resulting signals worked well because strong trends emerged with these centerline crossovers.

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Below is a chart of Cummins Inc (CMI) with seven centerline crossovers in five months. In contrast to Pulte
Homes, these signals would have resulted in numerous whipsaws because strong trends did not materialize
after the crossovers.

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The next chart shows 3M (MMM) with a bullish centerline crossover in late March 2009 and a bearish
centerline crossover in early February 2010. This signal lasted 10 months. In other words, the 12-day EMA
was above the 26-day EMA for 10 months. This was one strong trend.

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1.13.6. Divergences
Divergences form when the MACD diverges from the price action of the underlying security. A bullish
divergence forms when a security records a lower low and the MACD forms a higher low. The lower low in the
security affirms the current downtrend, but the higher low in the MACD shows less downside momentum.
Despite decreasing, downside momentum is still outpacing upside momentum as long as the MACD remains
in negative territory. Slowing downside momentum can sometimes foreshadow a trend reversal or a sizable
rally.
The next chart shows Google (GOOG) with a bullish divergence in October-November 2008. First, notice that
we are using closing prices to identify the divergence. The MACD's moving averages are based on closing
prices and we should consider closing prices in the security as well. Second, notice that there were clear
reaction lows (troughs) as both Google and its MACD line bounced in October and late November. Third,
notice that the MACD formed a higher low as Google formed a lower low in November. The MACD turned up
with a bullish divergence and a signal line crossover in early December. Google confirmed a reversal with a
resistance breakout.

A bearish divergence forms when a security records a higher high and the MACD line forms a lower high. The
higher high in the security is normal for an uptrend, but the lower high in the MACD shows less upside
momentum. Even though upside momentum may be less, upside momentum is still outpacing downside
momentum as long as the MACD is positive. Waning upward momentum can sometimes foreshadow a trend
reversal or sizable decline.

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Below we see Gamestop (GME) with a large bearish divergence from August to October. The stock forged a
higher high above 28, but the MACD line fell short of its prior high and formed a lower high. The subsequent
signal line crossover and support break in the MACD were bearish. On the price chart, notice how broken
support turned into resistance on the throwback bounce in November (red dotted line). This throwback
provided a second chance to sell or sell short.

Divergences should be taken with caution. Bearish divergences are commonplace in a strong uptrend, while
bullish divergences occur often in a strong downtrend. Yes, you read that right. Uptrends often start with a
strong advance that produces a surge in upside momentum (MACD). Even though the uptrend continues, it
continues at a slower pace that causes the MACD to decline from its highs. Upside momentum may not be as
strong, but it will continue to outpace downside momentum as long as the MACD line is above zero. The
opposite occurs at the beginning of a strong downtrend.

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The next chart shows the S&P 500 ETF (SPY) with four bearish divergences from August to November 2009.
Despite less upside momentum, the ETF continued higher because the uptrend was strong. Notice how SPY
continued its series of higher highs and higher lows. Remember, upside momentum is stronger than downside
momentum as long as the MACD is positive. The MACD (momentum) may have been less positive (strong) as
the advance extended, but it was still largely positive.

1.13.7. The Bottom Line

The MACD indicator is special because it brings together momentum and trend in one indicator. This unique
blend of trend and momentum can be applied to daily, weekly or monthly charts. The standard setting for
MACD is the difference between the 12- and 26-period EMAs. Chartists looking for more sensitivity may try a
shorter short-term moving average and a longer long-term moving average. MACD(5,35,5) is more sensitive
than MACD(12,26,9) and might be better suited for weekly charts. Chartists looking for less sensitivity may
consider lengthening the moving averages. A less sensitive MACD will still oscillate above/below zero, but the
centerline crossovers and signal line crossovers will be less frequent.
The MACD is not particularly good for identifying overbought and oversold levels. Even though it is possible to
identify levels that are historically overbought or oversold, the MACD does not have any upper or lower limits
to bind its movement. During sharp moves, the MACD can continue to over-extend beyond its historical
extremes.
Finally, remember that the MACD line is calculated using the actual difference between two moving averages.
This means MACD values are dependent on the price of the underlying security. The MACD values for a $20
stocks may range from -1.5 to 1.5, while the MACD values for a $100 may range from -10 to +10. It is not
possible to compare MACD values for a group of securities with varying prices. If you want to compare
momentum readings, you should use the Percentage Price Oscillator (PPO), instead of the MACD.

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1.13.8. Using MACD With SharpCharts

The MACD can be set as an indicator above, below or behind a security's price plot. Placing the MACD
“behind” the price plot makes it easy to compare momentum movements with price movements. Once the
indicator is chosen from the drop-down menu, the default parameter setting appears: (12,26,9). These
parameters can be adjusted to increase or decrease sensitivity. The MACD Histogram appears with the
indicator or can be added as a separate indicator. Setting the signal line to 1 or leaving it blank, i.e. (12,26,1)
or (12,26), will remove the MACD Histogram and the signal line. A separate signal line, without the histogram,
can be added by choosing “Exp. Moving Avg” from the Advanced Options Overlays menu.

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1.13.9. Suggested Scans

Here are some sample scans that StockCharts members can use to scan for various MACD signals:
1.13.9.1. MACD Bullish Signal Line Cross
This scan reveals stocks that are trading above their 200-day moving average and have a bullish signal line
crossover in MACD. Notice that MACD is required to be negative to ensure this upturn occurs after a pullback.
This scan is just meant as a starter for further refinement.

[type = stock] AND [country = US]

AND [Daily SMA(20,Daily Volume) > 40000]
AND [Daily SMA(60,Daily Close) > 20]
AND [Daily Close > Daily SMA(200,Daily Close)]
AND [Yesterday's Daily MACD Line(12,26,9,Daily Close) < Daily MACD Signal(12,26,9,Daily Close)]
AND [Daily MACD Line(12,26,9,Daily Close) > Daily MACD Signal(12,26,9,Daily Close)]
AND [Daily MACD Line(12,26,9,Daily Close) < 0]

1.13.9.2. MACD Bearish Signal Line Cross

This scan reveals stocks that are trading below their 200-day moving average and have a bearish signal line
crossover in MACD. Notice that MACD is required to be positive to ensure this downturn occurs after a
bounce. This scan is just meant as a starter for further refinement.

[type = stock] AND [country = US]

AND [Daily SMA(20,Daily Volume) > 40000]
AND [Daily SMA(60,Daily Close) > 20]
AND [Daily Close < Daily SMA(200,Daily Close)]
AND [Yesterday's Daily MACD Line(12,26,9,Daily Close) > Daily MACD Signal(12,26,9,Daily Close)]
AND [Daily MACD Line(12,26,9,Daily Close) < Daily MACD Signal(12,26,9,Daily Close)]
AND [Daily MACD Line(12,26,9,Daily Close) > 0]

For more details on the syntax to use for MACD scans, please see our Scan Syntax Reference in the
Support Center.

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1.13.10. MACD FAQs

1) What does the MACD indicate in trading?

The MACD can be used to analyze the state of the price action and identify potential buy and sell signals.
Traders look for signal line crossovers, centerline crossovers, and divergences to generate signals. Positive
MACD values indicate that the 12-day EMA is above the 26-day EMA, suggesting increasing upside
momentum, while negative values suggest increasing downside momentum.

2) What is the difference between signal line crossovers and centerline crossovers in MACD?
Signal line crossovers occur when the MACD line crosses above or below the signal line, indicating bullish or
bearish signals, respectively. Centerline crossovers occur when the MACD line crosses above or below the
zero line, implying that the shorter-term EMA has crossed the longer-term EMA. This can suggest a change in
the overall trend of the market.

3) Can the MACD be used to identify overbought and oversold levels?

The MACD is not particularly useful for identifying overbought and oversold levels as it does not have upper or
lower limits to bind its movement. During sharp moves, the MACD can continue to over-extend beyond its
historical extremes.

4) What is the standard setting for MACD?

The standard setting for MACD is the difference between the 12- and 26-period Exponential Moving Averages
(EMAs). However, these values can be adjusted to increase or decrease sensitivity depending on the trader's
style and goals.

5) Can MACD values be compared for different securities?

It's important to note that MACD values are dependent on the price of the underlying security, meaning it's not
possible to compare MACD values for a group of securities with varying prices. For comparing momentum
readings across different securities, the Percentage Price Oscillator (PPO) should be used instead of the
MACD.

1.13.11. Additional Resources

1.13.11.1. Stocks & Commodities Magazine Articles

Moving Average Convergence/Divergence (MACD) by Thom Hartle

Feb 1991 - Stocks & Commodities V. 9:3 (104-104)

The Moving Average Convergence/Divergence by Mark Vakkur

Mar 1997 - Stocks & Commodities

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