The “moving average divergence line” is an indicator of the oscillator system that uses the habit of moving the “moving average line” to identify the reversal of the trend. Since it is an oscillator-based index, it is used as a contrarian (buy when the market is bad or sell when the market is good) trading standard.
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What is the moving average divergence line?
The them in order to make an investment. deviation line” is a line (line) that indicates how far (the deviation) the current price is from the ” What is a moving average? ” explained in chapter 1 . It is a graph of the divergence rate” obtained by dividing the closing price by the moving average value for the specified period. How far the current price is compared to the moving average, taking advantage of the general property that if the current price deviates significantly from the moving average, then it tends to move closer to the moving average again . This is an analysis method that can be used as a guide for buying and selling decisions.
How to read the moving average divergence line and how to measure the trading timing
How to read the moving average divergence line
If the closing price on the previous day and the moving average are the same, the divergence rate will be 100%. And when the price rises sharply, the price deviates significantly above the , so the divergence rate greatly exceeds 100%, and conversely, when the price plummets, the divergence rate falls well below 100%.
This time, we will take the 25-day deviation line as an example.
How to buy and sell timing
The 25-day moving average is a line that calculates the “average value” of the closing prices of the past 25 days and connects the values, so the price is usually located not far from that line. It is usually located between 95% and 105% .
Therefore, it is generally considered that the market will enter the immediate adjustment phase when the 25-day moving average divergence line is 105% or more, and it will be the selling when it is 110% or more.
On the contrary, when it becomes 95% or less, the market price is considered to turn into a rebound in the near future, and when it becomes 90% or less, it is said to be the buy.
Finally, when conducting a technical analysis, avoid making decisions by looking at only one indicator. It is necessary to find your own trading timing by using it well with other indicators.
Also, keep in mind that it is very important to create your own investment rules such as loss cuts and follow them in order to make an investment.