MACD Crossover Strategy Using Short- and Long-Term EMAs

Summary

The document introduces MACD as a way to compare a shorter-term exponential moving average with a longer-term one. It defines DIFF as the difference between the 12-day and 26-day EMAs, and describes a 9-day EMA of that difference as the signal or DEA line. The gap tends to widen when the averages diverge during a sustained move; the document presents a narrowing gap as part of how a possible reversal is identified.

Its basic trading rule is to buy and hold after a bullish MACD crossover, then sell and remain out of the market after a bearish crossover. It also describes a change from negative to positive MACD as a possible bullish indication and the reverse as bearish. No backtest, transaction-cost analysis, or risk controls are supplied. Crossover signals can lag price changes, and the note does not specify execution timing, short-selling rules, or how the strategy handles sideways markets.

Key ideas

• DIFF is defined as the 12-day EMA minus the 26-day EMA.
• The 9-day EMA of DIFF serves as the signal line in the described MACD setup.
• The strategy buys and holds on a bullish crossover, then sells on a bearish crossover.
• The document gives no performance tests, execution details, or risk-management rules.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.