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2016issue C057-11

MACD as a zero-line filter with dual moving averages

This lesson restyles the MACD line so it can be read against zero, then pairs that reading with a slower exponential moving average and a nearer weighted moving average. The archive treats zero-line polarity as a tape state and the averages as a gate. An editorial aim is a sequencing habit that keeps every oscillator wiggle from becoming a trade.

  • Remove the conventional signal overlay so the MACD line is read against its zero line rather than against a second average of itself.
  • Treat MACD above zero as a generally constructive tape state and MACD below zero as a generally negative one, and treat bars that hover near zero as weak, sideways momentum.
  • Authorize long setups only when price is above the slower exponential average and MACD bars are positive, and short setups only when price is below that average and MACD bars are negative.
  • Treat a close through the nearer weighted average, or price in the inter-average zone, as a caution that retracement, consolidation, or chop may be underway.
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Current trackWeighted moving average24 readingsMACD115 readingsMoving average449 readings

The MACD line versus its zero line

A conventional MACD line is the difference between a 12-period exponential moving average and a 26-period exponential moving average, with a 9-period exponential average of that line used as a signal overlay.

Changing the signal average from a 9-period exponential setting to a 1-period exponential setting removes the overlay. The reading that remains is the MACD line versus its zero line.

SCG MACD line versus zero and the signal

Read polarity first: the MACD line stays positive through the whole Scana advance and flips negative on the 2015 decline, so the zero-line state changes far less often than the signal-line crosses marked on the pane. Weekly points were read off the published daily eSignal chart, not from a table, and the tenths are approximate.
Read polarity first: the MACD line stays positive through the whole Scana advance and flips negative on the 2015 decline, so the zero-line state changes far less often than the signal-line crosses marked on the pane. Weekly points were read off the published daily eSignal chart, not from a table, and the tenths are approximate.SCG · Daily · 2014-10-06T00:00:00.000Z to 2015-06-15T00:00:00.000Z

Figure 1 is the ordinary 12–26 MACD with a 9-period signal, in dollars. Dates follow the printed October 2014–June 2015 window and the 15 April 2015 marker. The pane’s last oscillator print is −0.50.

A histogram of the line, not of the spread to the signal

Displaying that MACD line in a histogram-line style, and scaling it as a percentage of movement rather than a currency change, is presented as a way to make zero-line crossings easier to see.

A 12-period versus 26-period price-percent oscillator plotted as a histogram is offered as a substitute when charting software cannot restyle the MACD line itself.

That restyled display is a bar plot of the MACD line itself above and below zero. It is not the common MACD-histogram function that subtracts the signal line from the MACD line.

Polarity, near-zero bars, and unconfirmed extremes

Zero-line polarity is whether the MACD line sits above or below zero. MACD above zero is treated as a generally constructive tape state and MACD below zero as a generally negative one. A turn back toward zero after a directional run is treated as fading momentum rather than an automatic reversal.

Histogram bars that hover or fluctuate near zero are associated with weak momentum and sideways or range-bound price action.

A new price extreme that the MACD line does not confirm is presented as momentum divergence. It marks a shift in momentum, not a guaranteed trend reversal.

A slower exponential gate and a nearer weighted caution line

A 34-period weighted moving average and a 55-period exponential moving average are added to price. Long setups require price above the 55-period exponential moving average with MACD-positive bars. Short setups require price below the 55-period exponential moving average with MACD-negative bars.

The weighted moving average is the nearer caution line. A close through that 34-period average, or a warning mark when price occupies the inter-average zone between the two averages, is used as a caution that a retracement, consolidation, or choppy stretch may be underway.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
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All readings on this track · 20 readings
  1. 1988Indicator smoothing: lookback, weight, and scale
  2. 1990Recency weighting in simple, linear, and exponential moving averages
  3. 1990Seed and recurrence construction for moving averages
  4. 1990Constructing a five-day step-weighted moving average
  5. 1992Constructing simple, weighted, and exponential moving averages
  6. 1992Constructing moving averages with weighting schemes and extra filters
  7. 1992Constructing a weighted-average TRIN10 with Bollinger envelopes
  8. 1992Constructing a banded weighted open-TRIN oscillator
  9. 1993Evaluating a weighted dual rate-of-change momentum filter
  10. 1993Constructing equal, linear and exponential moving averages
  11. 1993Constructing a general weighted moving average from one exponent
  12. 1993Calibrating the weighted-moving-average exponent
  13. 1993Constructing an exponent-weighted average of put-call ratios
  14. 1994Cycle-tuned momentum with spectral peaks
  15. 1999How a five-bar sine-weighted average is assembled
  16. 2003Same-scale trend filter from a rolling least-squares endpoint
  17. 2003How a rolling linear-regression endpoint is assembled as a moving-trend
  18. 2004Constructing a volume-weighted moving average as a forecast baseline
  19. 2005Constructing a move, volume and recency weighted average
  20. 2016MACD as a zero-line filter with dual moving averages
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Also on Weighted moving average5 readings
1982Constructing moving averages with weights, alignment, and adaptive lookbacks1988Indicator smoothing: lookback, weight, and scale1990Constructing a five-day step-weighted moving average1990Recency weighting in simple, linear, and exponential moving averages1990Seed and recurrence construction for moving averages