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2002issue C041-4

Separate bounded and trend-following oscillator rules

The relative strength index, the stochastic oscillator, and MACD are often treated as interchangeable momentum tools. Their constructions are not equivalent, so overbought and oversold bands that fit one closed-range oscillator do not transfer to the other, or to an open-ended reading that scales with trend velocity.

  • The relative strength index, the stochastic oscillator, and MACD are often treated as interchangeable momentum tools even though their constructions are not equivalent.
  • Lengthening the relative strength index lookback shrinks its swing range, so conventional 70 and 30 bands are often pulled toward 60 and 40, and 0 or 100 readings become nearly unreachable after about nine periods.
  • After the stochastic lookback is lengthened, the oscillator can still travel between 0 and 100 and can reach those extremes even in a weak trend, because it does not scale with trend velocity.
  • MACD belongs with open-ended, trend-following oscillators that lack fixed overbought and oversold levels, because a faster price trend produces a steeper, larger reading.
Entries in this reading3 entries
Current trackMACD115 readingsStochastic oscillator170 readingsRelative Strength Index186 readings

These oscillators are not equivalent

The relative strength index, the stochastic oscillator, and MACD are often treated as interchangeable momentum tools even though their constructions are not equivalent.

The relative strength index is a bounded oscillator whose reading comes from the balance of up periods against down periods over a chosen lookback. The stochastic oscillator is a bounded oscillator that places the latest close inside the high-low range of a lookback window. MACD is an unbounded oscillator formed by subtracting a longer moving average from a shorter moving average.

Closed-range tools still do not share one band rule

Lengthening the relative strength index lookback shrinks its swing range, which is why conventional 70 and 30 bands are often pulled in toward 60 and 40. Because the relative strength index is driven by the count of up days versus down days, two trends with the same directional-day mix produce the same reading. Lookbacks longer than about five to nine periods make 0 or 100 values nearly unreachable as the oscillator drifts toward its 50 midpoint.

After the stochastic lookback is lengthened, the oscillator can still travel between its fixed 0 and 100 bounds, whereas the relative strength index almost never reaches those bounds once the lookback exceeds nine periods. On two price paths that differ in speed but not in directional geometry, the stochastic close-to-range ratio can print the same value, so the oscillator does not scale with trend velocity and can reach its extremes even in a weak trend.

The relative strength index and the stochastic oscillator belong with closed-range tools that can mark overbought and oversold conditions regardless of trend strength. The stochastic oscillator keeps that range behavior at longer lookbacks, but the relative strength index does not after about nine periods.

MACD follows trend direction and speed

MACD is the gap between a shorter and a longer moving average, so a faster price trend produces a steeper, larger MACD reading and the indicator tracks trend direction and speed.

MACD belongs with open-ended, trend-following oscillators that lack fixed overbought and oversold levels.

Short directional runs in a daily sample

In one multi-year daily sample, about 45 percent of the time was spent in one-day directional runs, about 86 percent in one- to three-day runs, and runs of six to ten days accounted for less than 1 percent of the time.

Editorial reading: because the relative strength index depends on the mix of up days and down days, a longer lookback that covers many of these short runs sits nearer the 50 midpoint and rarely prints a 0 or 100 value.

DJIA consecutive daily runs, 1996–2001

One- to three-day one-way runs take most of the sample, and streaks of six days or longer stay under one percent of the time, which is why a longer RSI almost never prints 0 or 100. The percents are the article’s tabulated share of time for each up-move and down-move length, not a tracing of the printed bell-curve figure.
One- to three-day one-way runs take most of the sample, and streaks of six days or longer stay under one percent of the time, which is why a longer RSI almost never prints 0 or 100. The percents are the article’s tabulated share of time for each up-move and down-move length, not a tracing of the printed bell-curve figure.DJIA · daily · 1996-04-01T00:00:00.000Z to 2001-04-30T00:00:00.000Z

The printed table header dates the sample April 1996–April 2001; the body also says April 1995 and 1,290 sessions. Down runs of seven to ten days are recorded as zero.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
25 of 80 in the MACD track
20021-5 pp.Next on MACDSort the regime before assigning MACD and stochastic jobsRegime bars above each chart sorted names into mostly rising, mostly falling, or mixed sideways oscillation before any tool was given a job.
All readings on this track · 80 readings
  1. 1988Rebuild MACD-Mo and MACD-H before treating them as signals
  2. 1989Four-span MACD lookbacks as perishable parameters
  3. 1989Weekly then daily MACD confirmation on individual stocks
  4. 1991Regime-gated MACD and stochastic rules inside a checklist
  5. 1991Constructing MACD signal lines and divergence tests
  6. 1991MACD parameter order and cycle phase lag
  7. 1992Lengthened bond MACD as an equity regime filter
  8. 1992Long-horizon MACD construction from paired exponential averages
  9. 1993Constructing a signed ten-point trend filter
  10. 1994Constructing lag-reduced double exponential averages for MACD
  11. 1994Seeding DEMA2 filters to build a MACD signal
  12. 1994Constructing MACD from lag-reduced exponential averages
  13. 1994TEMA1 from nested exponential averages, then a two-horizon MACD
  14. 1994Constructing entry and exit on a relative-strength MACD
  15. 1994Constructing a relative-strength MACD crossover spreadsheet
  16. 1995Consensus presignal filters for Relative Strength Index, MACD and the Stochastic oscillator
  17. 1997Confirm the MACD turn with price, then exit on the histogram
  18. 1997Reconstructing a stochastic oscillator, MACD, and a triple-smoothed oscillator
  19. 1997Moving-average windows before crossovers and MACD
  20. 1999Second-stage MACD on relative-strength inputs
  21. 1999Constructing MACD from exponential-average spreads for crossover and divergence
  22. 1999Coding candlesticks into numeric indicators
  23. 2001Second-low confirmation with a percentage oscillator and money-flow filter
  24. 2001Constructing MACD from exponential average spreads and a signal line
  25. 2002Separate bounded and trend-following oscillator rules
  26. 2002Sort the regime before assigning MACD and stochastic jobs
  27. 2002Building classic divergence filters from RSI and MACD
  28. 2002Weekly highs and lows as trend gates
  29. 2002Constructing channel-normalized Fisher reversal signals
  30. 2002Affine-price and the Fisher transform as a constructed companion to MACD
  31. 2003Regularized EMA construction with a MACD line and a thrust oscillator
  32. 2003Curvature-penalized exponential averages versus MACD
  33. 2003MACD, moving averages, and a trend filter as one timing system
  34. 2003Fractional MACD and linear-regression reversal construction
  35. 2004Weekly MACD-histogram timing of bear-market rallies
  36. 2004Candlestick triggers filtered by MACD divergence
  37. 2004Staging energy-complex tops with trendline, breakout, and MACD
  38. 2005Selling climax holds versus fails
  39. 2006Treat a sideways Wave as permission before a breakout
  40. 2007MACD with a Stochastic oscillator for spotting trend reversals
  41. 2007Rebuilding an S&P 500 fifth-wave count after a broken target
  42. 2007Constructing MACD, RSI, and stochastic confirmation for futures
  43. 2007MACD histogram divergence needs a confirming close
  44. 2007Write the plan as a stack: ratio, boundary, then oscillators
  45. 2008MACD divergence and Stochastic oscillator confirmation on lumber futures
  46. 2008Assign confirmation, timing, and a stop before a currency pair is tested
  47. 2008Confirm the ten-bagger launch path before the MACD exit
  48. 2008Reading the offloaded evidence file
  49. 2008A Leader companion for MACD direction warnings
  50. 2008Relative strength exits with MACD averages and RSI
  51. 2008Assign one job per indicator in a three-screens rule set
  52. 2008Sequencing RSI, MACD, and average crossovers
  53. 2010Constructing the Schaff Trend Cycle from MACD and a dominant-cycle window
  54. 2010Schaff Trend Cycle as a MACD and Stochastic oscillator combination
  55. 2010Combining Relative Strength Index, the stochastic oscillator, and MACD as slope filters
  56. 2010Short-term wave and ratio clues without direction calls
  57. 2010A precise pullback entry and an unplanned profit-protection exit
  58. 2010Filtering MACD false signals with trendline breaks
  59. 2011Vendor feeds as an input variable in a MACD evaluation
  60. 2012Out-of-the-money versus in-the-money option sensitivity to implied volatility
  61. 2012MACD window tuning as hold-time control
  62. 2012Combining a moving-average crossover with MACD and support-resistance
  63. 2012Testing a published MACD entry with a histogram and signal-line agreement filter
  64. 2012Treat sample systems as a lab before live rules
  65. 2013Constructing moving averages and MACD from one price series
  66. 2013The next-bar price that forces a MACD signal-line cross
  67. 2013Constructing next-bar MACD reversal prices
  68. 2013Constructing inverted MACD reversal prices
  69. 2014Shared-filter combinations of the stochastic oscillator, MACD, and RSI
  70. 2014Square-root lookbacks for combined MACD and RSI
  71. 2015Audit open interest and trend before trusting oscillator crossovers
  72. 2016MACD without a signal line, confirmed by moving-average trend filters
  73. 2016Use RSI, MACD, and a moving average as a market-health consensus
  74. 2016MACD line versus histogram is a display problem first
  75. 2017Weekly and daily MACD on a single daily chart
  76. 2017Weekly and daily MACD as a stacked momentum filter
  77. 2017Nested weekly and daily MACD from paired EMA spreads
  78. 2018Weekly and daily PPO scale versus MACD, with bounded RSI and stochastic readings
  79. 2018Constructing a weekly and daily percentage price oscillator
  80. 2020Constructing Wyckoff tape reading with MACD, moving-average, and RSI filters
By fieldIndicators and filters682 readingsBy year200284 readings
All 115 readings tagged MACD
Also on MACD5 readings
1995Consensus presignal filters for Relative Strength Index, MACD and the Stochastic oscillator2007Constructing MACD, RSI, and stochastic confirmation for futures2007Write the plan as a stack: ratio, boundary, then oscillators2010Combining Relative Strength Index, the stochastic oscillator, and MACD as slope filters2014Shared-filter combinations of the stochastic oscillator, MACD, and RSI