BMI - MacD Magic Monster

Everybody knows what MacD is right?

But have you ever thought about what the zero line is?
Once you KNOW what the zero line actually is, then MacD takes on a whole new meaning and becomes a powerful indicator.

Have you ever wondered why the MacD is showing Up, Moving from well below the zero line upwards towards the zero line but still the price is dropping?

Some say it is divergence and it indicates ... blah blah blah.

But what this actually means is, lets find a way of saying something that sounds valid because surely it WILL go up since MacD shows up...?


As you can see in this picture, The price is heading south while MacD (the standard one in the indicators tab just slightly better colour settings) set to 12,26,9 . Also the zero Line is a thick blue line.

http://img228.imageshack.us/img228/658/macd1.png





Now the following picture Has some EMA's on it.
EMA 47 (12+26+9)
EMA 14 (26-12)
EMA 2 (12-9)/2

http://img32.imageshack.us/img32/4092/macd2.png





Not an exact replica of the MacD, but very close no?
Just to fully embed this concept in your mind, the next pic has the same value EMA's in a separate window.

So Now we have a slanted MacD that doesn't give the false impression of moving up, when the zero line is not actually a horizontal line but is an EMA.
Yet since we see it as a straight line in the MacD, our natural tendency is to perceive that anything that is below it that moves up is actually moving up.

http://img168.imageshack.us/img168/3003/macd3.png





By zooming out to max it becomes very simple to fully perceive the right way of what MacD shows us.
The orange line in the MacD appears below as a non contradictory downward trend. The vertical white lines are the crossover points on the MacD and also on the EMA version of the same Macd. So by seeing the trend, one need not panic and close the short trade just because the MacD is heading north. It can simply be seen that each touch of the 'zero' line is still lower than the previous touch.

http://img227.imageshack.us/img227/4109/macd4.png

Now we get to an interesting MacD that shows us even more.

It is a long term MacD, and it took me almost 2 years of experimentation to find the right numbers (EMA's actually).

75,365,60 - A pretty strange MacD, yes?

http://img7.imageshack.us/img7/7629/macd5.png

Here is the MacD (75,365,60)
As well as the EMA's
EMA 500 (75+365+60)
EMA 290 (365-75)
EMA 8 (75-60)/2 (rounded up)





http://img38.imageshack.us/img38/609/macd6.png

And here on the Weekly chart are the two together.

That is 8800 pips (as you will see in the next pic is actually conservative) with basically zero drawdown over ten years.

That is also excluding the medium term trades that happen while the long term trade grows and grows. Rollover fee's I hear you thinking? There are several brokers that offer their services with zero swap fee's.

Risk Reward ratio? As I will show you, the risk is almost zero, while the reward. Well let us say it is fairly reasonable.





http://img17.imageshack.us/img17/7246/macd7.png

1. The price drops to test EMA 290, but fails to break through. Prior to that it was testing to break above EMA 500 also failing to break through.
Notice that EMA 47 (the red one) fails to turn South.

Without counting the 4500 pip in the one year from the bar that almost touches EMA 290 after the two that tested to the LowerHigh where number 2 is, we get our first signal that a reversal is in the offer.

2. Our second signal comes from the turning of the EMA 47.

3. Our entry point and third signal that reversal has happened is the testing to break above EMA 47 that fails.

The exit point of the first short is where she breaks above EMA 47. This is also the entry for the long position.




http://img521.imageshack.us/img521/451/macd8.png

4. There is one point halfway up the long trade where EMA 47 turns South but they are 3 short scallops that end with a higher low. If the Higher low were to have been a Lower Low, it would have broken below EMA 290 which would be our exit signal. Also EMA 290 had not turned South. The gap between EMA 47 was still hugging EMA 290.

If however at that time we were to decide to close the tradeas soon as we saw EMA turn South, it was at 2100 Pips a few weeks after EMA 290 turned South, and we would open a new trade on first test and bounceback off EMA 600.





http://img40.imageshack.us/img40/7954/macd9.png

5. The gap here between the High at 5, and EMA 500 is now at 5000 Pips. It is getting homesick. Directly below 5. is the first Lower Low since the 4. testing for southbound territory. Imediately after 5, EMA 290 starts to turn.
Once the price breaks below EMA 47 a tries to break back above and fails is a good exit point.

After this trade is finished, the break below EMA 500 is the entry for the next short.

This excludes the many bounces off the EMA 500, EMA 290 ans EMA 47 Weekly 'scalps' of around 1500 to 300 pips each that are evident and give clear signals after failing to break the various resistance points.

Then phase two of the system is to do the same on the daily chart, the H4, the H1 all the way down to the M15.

These two "MacD's" (which actually ARE MacD's but aren't since they are EMA's are true magic EMA's.

If you think I am joking, check em out.
I am attaching the indicators for them, and you will see that the separate window EMA's have 6 EMA's in them using 3 for background and three for colour. Doing it this way leaves the two 'MacD's' floating, so the touch/test points should only be done on the chart itself. OR you can set up both MacD's in ONE separate window indicator.

You work out the details.

Enjoy.
BlueMental.

And here are the indicators.

Please excuse that these are back to front, since I had to split them to get all the pics in. (sorry Admin, but only once and they were needed)

hi BM
sorry but i cant see the picture...

Blue,

R u using " Save as Picture" in the file menu and then uploading the screen shots?

Pat

where is the pic?

yeah... there is no pic here.
please upload the pics again

Ummm. I used the link option with Image shack, then from image shack I copied the 'forum' text (had url details on it).

Now I tried uploading it directly (the pics wont be in the right place, but at least they should be there.

<EDIT>
Sorry about that everyone, I am not (rephrase WAS not) familiar with getting pics in my posts. Prior to this I just uploaded them and they all end up at the end of the post.

It seems odd to me that it has an 'insert image' option that does not work, while a simple copy paste of the embed url version does the trick.

Anyway, we live and learn. Ps, the long pause of no action was me finally falling asleep at the desk while trying to set this up. (I did another one of those 48 hours forex trading stints, and got a bit dozy.)
</EDIT>

nice one .you find it
macd and ma are very useful and powerful tools if you put them together
and trade it skilly .
many people just think those two are lagging indicator becose they don't really
know how to use them .
i made 800-1000 pips in euro every month since 6 years ago,only using those two "lagging indicators.
sounds impossible ,hmm.but it is true.
congratulation ,i believe you will make huge pips .

Bluemental your take on MACD and MA combo is brilliant. I've always been a fan of classic technical analysis principles. Will follow this thread with interest. Keep up the good work and thanks for sharing.

Hi FxHermit and Mac + Ma (a very apt name for this thread)

if you want to find some interesting info regarding the bounce off EMA's and round numbers (all SR levels) go check The Dance at this link

http://www.forexfactory.com/showthre...&goto=lastpage

It ties in a great deal with the MacD/MA methodology posted here.

Only a pleasure.

There is no magic about MACD. It is simply subtraction of the two moving averages and then smothing it.

For example MACD 12,26,9 means we see the difference of EMA 12 and EMA 26 (white histogram - how far is EMA 12 from EMA 26), the second line is 9 period MA of that difference, also called as signal line (red line in MACD indicator window).

So, when MACD crosses zero line, it is exacltly the same thing as EMA 12 and EMA 26 crossover.

When you see price slowly dropping and MACD shows "uptrend" it means nothing else than the two EMAs are getting closer to each other as the EMAs difference is getting smaller.

Exactly the point and seeing the zero line in it's horizontal format stops people knowing that.

The zero line develops it's own EMA (as you can see if you look at my pictures)

If you do not see how the Lows,Highs,Opens and Closes of the Bars bounce off the EMA 500, 290 and 47, and how those same EMA's constrain the Price Actions, then you are not seeing the MacD Monster Magic at work.

It is all about perspecive.
BlueMental

This last signal has been a beauty. Good for about 150 pips so far and it looks like it's still going some more. The signal prior to this one was no slouch either. Yup, it is all about perspective .

A very dynamic way of looking at true price action.

Hi Bluemental,
Just curious, the moving averages are refered to as EMA's but the indicators are calculated as SMA's ??? Am I correct in that?

As a swing trader I make a lot of use of the H4 as a set up timeframe. So, I thought that I would see how this methodology holds up with the way that I usually like to draw my channels and trendlines. Impressive! The signals are pretty well spot on .

When cycled down into an H1 trigger chart, I have no complaints either. At this early stage of BlueMental presenting this methodology, I dare say, that it looks like it has the potential to be a very profitably trading approach.

Gotta love good old classic principles of technical analysis, especially when they are applied in such a creative manner.

Here is a little Asian session scalp. Entry on the M5. Maybe it will develop legs, maybe it won't, price has dropped a long way in the last 24 hr. but there still seems to be some empty air under it. Doesn't matter one way or the other because profit stop is currently at +14 . I am liking the straight forward simplicity of this method.

Thanks for sharing this with us, you sir are onto something...big.