Hi Everyone.

Here is a not quite normal way of using MacD, as you will see if you follow through the whole thread, that in the end there is no MacD indicator on the charts, but yet there is.

Here is a picture 1 of GbpJpy H1 with a Standard MacD 12,26,9




Followed by Picture 2 which is the same picture with some added EMA's

EMA 47 (12+26+9)
EMA 14 (26-12)
EMA 2 (12-9)/2




In Picture 3 we have the same EMA's now viewed in their own separate window beneath the MacD.

Since the MacD (Moving Average convergence and Deviation) is actually the crossover of the Fast and Slow Moving Averages, the Zero Line in the MacD represents the Base for the Histogram that is Drawn. If the Fast Moving average crosses above the Slow Moving Average, then the histogram Moves above the zero line and is portrayed by the value of Fast Moving Average - Slow Moving Average.

The 'Signal' MA of 9 is actually the EMA of the histogram of the difference of the two Moving Averages.

So what it actually means when the signal and the histogram is going UP is that the Fast Moving Average is moving closer towards (converging with) the Slow Moving Average.
It does NOT mean that the price action is moving up.

This is what gets spoken about as 'divergence'. It is actually a misinterpretaion of what is actually being shown. The pictures shown so far are believed to be showing a MacD divergence to the Price Action on the chart. (Price Action going Down, while MacD Histogram is Going Up)
While in truth, what is actually happening, is the Fast Moving EMA is Converging on the Slow Moving EMA.

It can clearly be seen on both the separate Window EMA's and the EMA's on the chart, that the 'divergence' is not showing any indication that the price will reverse and move up. It is in truth a false signal.




BlueMental.

Here in this fourth picture, which is the previous picture zoomed out to max, you can see how the EMA's on the chart and in the separate chart render a close similarity to the MacD crossovers.
If you wished to have the exact crossover points on the chart, then you use the 12 and 26 EMA's, however that was not my intent. I wanted a visual representation closely matching the MacD that can be seen at the angle of the trend it is in. Meaning that the 'zero' Line's angle of trend can easily be refernced without having to do any thinking or calculating or guessing.




Now in this Next Picture, is the MacD numbers I use. 75,365,60 They are a long term MacD, and the EMA numbers are calculated the same way as those of the 12,26,9
EMA 500 (75+365+60)
EMA 290 (365-75)
EMA 14 (75-60)/2

(How I got these calculations was by long term trial and error, but they work on all MacD's in relation to the MacD's component value's.

You can see that the EMA's closely resemble the MacD Indicator.




BMI.

Since I can only attach 3 items, I decided to join some pictures together.

The pictures are Top Left - MacD 6, Top Right - MacD 7, Bottom Left - MacD 8 and Bottom Right - MacD 9.

MacD 6 is the use of both the 12,26,9 MacD and the 75,365,60 MacD.

When speaking in terms of the EMA's, I gave them a Family Hierarchy so it is easier to understand how they interact.

The 75,365,60 MacD - EMA's 500, 290 and 7 are the GrandPa, GrandMa and Cousin.
GrandPa - EMA 500 is Indigo
GrandMa - EMA 290 is Purple
Cousin is - EMA 7 is Maroon

The 12,26,9 MacD - EMA's 47, 12 and 2 are Mother Daughter and 2nd Cousin.
Mother - EMA 47 is FireBrick
Daughter EMA 12 is Coral
2nd Cousin - EMA 2 is Goldenrod

The 2 Cousins are pretty Minor in the bigger scheme of things, but I left them there since they give an easy view of which side of the EMA's the PA is on.
These particular EMA's have a particularly strong form of dynamic Support and Resistance. As you can observe in these chart Pictures, the Price Action Tends to bounce off the EMA's, and if it breaks through, the previous Up Trend Support becomes the Up Trend resistance which of course means it is now the Down Trend Support.

One other thing you will also notice, is that the chart rendition of the EMA's and the separate window rendition of the Same EMA's is the same, which is why I only use the Chart rendition in my setup. The seperate window version was primarily used to allow the understanding of how this all relates to the MacD.

As I said in the first post, The MacD Monster has no MacD's in it.... But it does <Grin>

So with this in mind, we now look at the four pictures.

Picture 1.

This is GbpJpy zoomed out to Max on the Weekly Chart, showing a 3 year down trend, followed by a 7 year uptrend, marked by the Yellow Trend Lines as well as the vertical white Lines showing starts and ends of the trends.

Picture 2.

This is zoomed in to a little befor the start of the 3 year down trend.

Yellow Number 1.
Shows where Mother had previously crossed above GrandMa, and Daughter (always accompanied by the Cousins) failed to break below GrandMa.

Yellow Number 2.
Shows that the Cousins and Daughter Broke below Mother and GrandPa and GrandMa.
Mother Turned into a Downwards Facing position. While the Second Cousin was initially bounced off GrandMa, It failed to break back above the Cousin, which Broke below GrandMa.
The two Cousins and the Daughter tried to break back above GrandMa, but failed.

Yellow Number 3.
Here you can see that Mother was now also below GrandPa and her Trend shows intent to break below GrandMa as well. The Daughter and the 2 cousins fail to break above GrandMa, Mother, GrandPa AND the strong Round Number of 195.000 which not many bars before was crossed below.

And adventurous trader would use The Price Action Bouncing off the Combined Resistance of the Elders and the Round Number as an entry point for Going Short.

A wise Trader would wait for the price to drop below the previous low. This would make the possibility much stronger and preferably with Daughter below Both Grandparents too.

It might not be clear in these pictures, but at Number 2, there is also an Evening Star Pattern that was confirmed. (It too could have been used as a Sell signal, but not as a long term trade sell signal.

Although the pictures do not show when to exit the Short, basically once the Cousins and the Daughter Touch Mother while they are facing Upwards is a good exit point.

That strategy would have made an approximate 1250 pip profitable trade.

As far as entering the Long positiom is concerned, I Mother changes direction, and the Daughter and the Two Cousins bounce above Mother the second time is a good place to enter the Long position.

Yellow Number 4.
Here you can see where Mother changes direction. Both Cousins and The Daughter Break Below Mother.

The adventurous Trader might decide not to close the long position here, since this is the second Testing of breaking below GrandMa.

A wise trader would close the long position. One can re enter with a new long position where the two bars Double Bottom on GrandPa, Mother and The VERY strong Round Number of 190.00 and bounce back up.

Yellow Number 5.

This point is where 2nd Cousin breaks below Mother, and we get our first Lower Low. It is likely (though might be stressful to stay in the trade for some) that there will be a retracement. It would be wise (assuming the Wise Trader missed the Engulfing Bear pattern at Number 5) to exit the trade here.

The Adventurous trader might wait for the retrace and exit after Lowe High is confirmed.


There is more to the Monster, and She can be used on all time frames. I chose a long term chart because this particular set allows you to view a lot of the variations in one place that are seen time and time again in all the charts using these EMA's.

Your comments are welcome, thank you, and I hope you benefit from this, even if your benifits are running away screaming "Don't trade like that!"

Blue Mental.

Ummm, For some reason the Picture did not get through, Here are the first 2, I shall put the second 2 in another post.
Perhaps the combined picture was too large.

Hello Bluemental,

you obviously put a lot of effort into this post, but I am sorry to say that I have no idea what this strategy is all about. I just found it impossible to follow.
Hope that it works for you

Keith