Technical Analysis

Centerline Crossovers

Centerline crossovers generate signals of market sentiment and can guide or confirm MACD crossovers.

• When the fast line crosses below the centerline it is an indication of a bearish phase in the market.
• When the fast line crosses the centerline going upwards, it is an indication that the market is switching from a bear to a bull sentiment.
• These signals will lag the market, but can act as good confirmations of MACD crossovers.
• The MACD-Line indicator might serve as a better visualization of these signals.

Centerline crossovers can not be used as effective buy and sell signals. They are shown as small black rectangles in Figure 6 and are obviously too late at giving good entry and exit points. If one moves the lines separated the bullish and bearish periods back some days (half a month), they would correspond better with the uptrend and downtrends seen on the chart. The MACD-Line indicator may be better at showing opportune times to enter or exit the market. These signals are shown as black circles in the MACD-Line panel. They come when the histogram peaks and starts reversing. This variant of oscillation does not need past levels to guide it as was the case in the previous section. However, this strategy requires good analytical skills in order to judge whether a peak is valid or not.

Centerline crossovers can help to determine if a MACD crossover is something to act on or ignore, as it may be part of trading range. The sentiment of the market will cause certain signals (like a sell MACD crossovers during a bearish phase) to carry less weight. In the next section, using Figure 6, we combine all three techniques; MACD crossovers, centerline crossovers and the peaking (ebbing) MACD-Line indicator.

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