New York, (PressExposure) June 07, 2012 -- Danny Esposito, contributor to Penny Stock Detectives, believes technical analysis is most useful in interpreting market action in many simple ways. Esposito argues the moving average convergence/divergence (MACD) on a stock's technical chart is the simple visual signal that is most effective for analyzing stock or market action.
"The simple MA [moving average] in technical analysis measures the average price of a particular stock or market over a period of time," explains Esposito. He further explains that a five-day simple MA is calculated by taking the closing prices of a stock or market for five consecutive days, adding them together, and dividing the total by five, to determine the average price of a stock or market during that period.
Furthermore, Esposito explains that the exponential MA (the "MA" in the MACD calculation) takes the simple MA and modifies it so that the emphasis is placed on the most recent closing prices. "The idea here in technical analysis is that more emphasis should be placed on the most recent closing prices, because they are really determining what is happening in the stock or market action," notes Esposito.
According to Esposito, the most common convergence-divergence in technical analysis is taking the 12-day exponential MA and subtracting it from the 26-day exponential MA to create the MACD line on a technical chart. "The purpose behind this is to create an MACD line that is truly reflective of momentum in the price action in the underlying market or stock," comments Esposito.
"Next, the nine-day exponential MA is plotted on the technical chart, which is referred to as the 'signal line' in technical analysis," Esposito continues. "The nine-day exponential MA is used because it is more sensitive to the most current price action in the market or stock, which is why it is referred to as the signal line."
"When the MACD line moves above the signal line, this signifies momentum in technical analysis," explains Esposito, "which means that it is time to buy, because the stock price should move higher. When the MACD line crosses below the red signal line, it is an indication to sell as the stock price has lost momentum."
Esposito concludes, "The MACD is a simple indicator in technical analysis that visually tells a trader when to buy and sell a stock or market. It can help an investor increase profits and/or prevent losses."
Published every business day, Penny Stock Detectives researches and analyzes low-priced opportunities in the stock market and individual stock market sectors. Penny Stock Detectives reports on penny stocks, small-cap stocks, micro-cap stocks, high-profit potential plays mostly under $10 and the stock market in general.
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Sasha Cekerevac, BA, and Danny Esposito, B. Comm., lead editorial stock analysts at Penny Stock Detectives, in conjunction with stock market guru George Leong, B. Comm., have just updated their breakthrough video, If You Missed Apple, Shame on Us; If You Miss This... which highlights a company these stock analysts believe looks very similar to Apple Inc. in its early days. To see the video, visit: http://www.pennystockdetectives.com/press/.