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MACD: Not Just a Burger
by kathia

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The first thing to check out when you're interested in a stock is the trending bars above the price graphs. Why? Because you make money by riding out stocks that are trending.

But after getting an initial impression of which direction a stock is trending you should always study the MACD (Moving Average Convergence-Divergence) graph.

The MACD graph (third graph from the top) has a fast line (the red one) and a slow signal (the blue line). The crossing of the red line over the blue can denote the beginning of a trend. The uptrend typically stops when the blue line crosses above the red.

Where the crossover happens tells you whether there is a trend and how strong it is. When the red fast line crosses over the blue line at or above the centerline (which serves as a constant at a zero value), the stock is trending hard - a definite candidate for a long position! The higher above the centerline it crosses, the stronger the uptrend is. If the crossover occurs below the centerline, the uptrend indicated is not nearly as strong.


America Online Inc (AOL)








Let's take a look at AOL. This stock has been in an uptrend for months. Pretty evident from the price graph, don't you think?

Check out the green bars over the price graph. Now look at the MACD graph (third graph from the top). See how, each time the red line crosses over the blue, a green bar is born over the price graph? See how the price goes steadily up when this happens? (The green bar disappears when blue prevails over red.)

Did you notice where the centerline on the MACD graph (0.0) is in relation to the crossovers? Each time the two lines cross higher above the centerline, the uptrend gain more momentum, and the price rises with more intensity.

To stress it again, the easiest way to make money is by latching onto a stock like AOL that is trending big time. In six months you could have doubled your investment. That is the power of MACD.


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