20-Min Chart: https://dl.dropboxusercontent.com/u/143105519/AUDUSD 20 Min Chart.gif 5-Min Chart: https://dl.dropboxusercontent.com/u/143105519/AUDUSD 5 Min Chart.gif 1 Min Chart: https://dl.dropboxusercontent.com/u/143105519/AUDUSD 1 Min Chart.gif MACD in bottom pane (Adam Grime's settings with histogram added). One common way to use MACD is to look for a divergence of the fast line with price. On the AUD/USD 20 min chart for example, look at point A/B: After a down-swing price hits a previous long-term support/resistance area at 7523 (horizontal blue line on the price chart). Here it consolidates sideways for a bit, then price drops down to B. Here we have a divergence, as price makes a lower-low while the MACD fast line makes a higher-low. This indicates loss of momentum in the trend and may signal a reversal. Another way to use MACD is to look for the fast line to be outside of the histogram - below it when the histogram is negative, above it when the histogram is positive. When this condition exists and the fast line then starts to turn over, this may also indicate a reversal as the mkt may be in an overbought/oversold condition. (I got this idea from an article in the current Modern Trader magazine, though the author seems to use it as indication that the mkt may consolidate. I bastardized that somewhat, as I find, at least in FX, that once it starts to turn over in these conditions, if there is confirming price behavior, there is often a short-term reversal.) This condition occurs on the 20-min chart. Note the blue price bar a few bars after B. This is an alert I use in my charting program, which, in regular language, says this: If the fast line is below 0 and the fast line is turning up on the current bar and the histogram is below 0 and the the fast line is below the histogram and the current price bar close is above the close of the previous price bar. When all conditions are met I gets moi a blue bar, indicating a possible oversold condition and maybe a reversal on this higher timeframe. Once I get the alert I look at price behavior, as the alert is only that - an alert that there is the possibility that something interesting may be happening. It is the past price structure and current price action that confirms (or dismisses) that possibility. In the case of the blue bar following B price could be springing significant longer-term support/resistance (horizontal blue line) as well as the previous low at A while on the indicator side we have that momentum divergence. Worth exploring on the lower timeframes. From the alert signal on the 20-min chart I go to the 5-min and 1-min charts. On the 5-min B is the same as B on the 20-min, C is the where the blue bar alert occurred. On this timeframe there is a nice rally off the B low on wide-spreads, then a pullback at C to that previous support to the left, which holds, while momentum (orange fast line) is very positive. Now to the 1-min chart. On the 1-min B is the same low as the other charts, C is again where the blue bar alert occurred. On this timeframe there is a classic apex to D. First, note the generally strong wave volume in the second pane from 1 to C vs the much-contracted wave vol from 4 to D. Now look at the blue horz s/r line that becomes a pivot line on the swings - resistance at 1, support at 2, resistance at 3, support at 4 - then at 5 at the closure of the apex the individual price bars pivot around it. I never cease to be amazed at the rhythm that markets can sometimes exhibit. Here I'm looking for a change in price behavior, which occurs at D. The widest spread up in 35 bars, since the reversal off the low at X, closing on the high, breaking out of the apex and above the previous two swing-highs. One might take a position at the close of this bar. I use the longer-term 20-min chart to find the possible initial setup, then the 5-min and 1-min to confirm the setup, then the 1-min to take the position and set initial stops. From there the 5-min to actively manage the position, while keeping an eye on the other two timeframes for any clues they may give me. On the 5-min, following D, it's all green and strong closes to E, where something interesting happens. Here I would pretty much ignore MACD and Wave Volume. In the study of TA one question is (if you use indicators, many do not): How valid to regard an indicator vs price behavior at any given point, as indicators are derivative and lagging while price represents actual current market value; that is, if price behavior is the primary focus and it is telling you one thing because of certain conditions while the indicators are telling you something divergent, when do you consider the indicators and when do you not? I think it comes from the understanding of what the indicators mean (and I am by no standard an authority) - What are they are actually measuring relative to What? How does lag fit into the price structure and current price action? This as opposed to just following certain criteria of the indicators blindly - crossovers, divergences, convergences, etc. So with this in mind, at E, price, following a parabolic upswing and overdue for a reaction, reaches previous longer-term support/resistance (horz blue line) and rests. Looking at the MACD fast line and histogram we can see the fast line significantly above the histogram, indicating an OB condition at E, true enough, and then during the consolidation to F, the fast line rolls over and drops quickly, negative by indicator standards. (Note, however, it does not break the 0-line, instead going flat, which is positive.) The histogram reaches new lows since B, negative. Wave up-volume is strong yet price cannot make any headway to the upside, indicating a possible effort vs. reward scenario, negative. But consider these indicators in the context of price behavior: Price Does Not Retrace from E to F. Not the standard 50%, not even the standard 25%. Virtually nothing. Nada. There is a sideways cluster of closes that stays almost at the very top of the upswing high. So if MACD is measuring, essentially, swing against swing, then naturally, since there is no upswing to F vs the previous strong rally to E, momentum contracts. But MACD doesn't take into account the positive price behavior: A "non-retracement retracement" at the high of the swing on tight sideways price action and lower individual volume, which is extremely positive, especially following a very strong rally. And wave vol is pretty much invalid during most tight consolidations, due to the limitations of its parameters. If you set them such-and-such a way with higher sensitivity there will be too much noise during swings and you won't actually capture the significant volume waves; if you set them too far the other way with lower sensitivity they will catch the swings but tight sideways consolidations will have no subtlety. One struggles to find the right fit, but, since, as with MACD, the swing is the thing, then I choose to err on the side of catching those volume waves during trends. So instead of the indicators I mainly consider the price action during the range from E to F: Spreads are all relatively tight, except for that one potentially potential wide-spread upthrust bar on high individual volume, which does not follow-thru to the down side (effort vs reward) and price goes sideways near the top of the swing with virtually no retracement. Nothing really wrong here, price-wise. From F to G a 4-bar rally, three closing at the highs on confirming individual volume, followed by another tight consolidation with a shallow retracement on lower volume. G, however, becomes a shortening of the thrust and the indicators are starting to become interesting: From E to G as price makes a higher-high there is a divergence with momentum making a significant lower-high. But, as of yet, nothing really ugly here price-wise. From H to I a 3-bar rally, again positive spreads, closes, and individual volume. However momentum makes another lower-high - further divergence - and there is another shortening of the thrust as well as a significant contraction of wave volume on this swing vs the previous two swings. Following I there is the widest spread down bar since B, closing near the low and from there price breaks down rapidly. Here there is a change in price behavior, considerably different on this reaction than we've seen previously.
My barber is named Mac D. I can't read your dissertation. The length is suggesting you want Technicals to give you certainty in trading. Technicals are simply a lens to look through.