An investment strategy based on the divergence in macd indicator

Abstract

This paper presents an investment strategy using the divergence pattern of the Moving Average Convergence - Divergence (MACD) Technical Analysis indicator. This pattern indicates trend reversals, signaling buying and selling times. A strategy based on the MACD indicator has been developed and applied to several historical US stock price series. In addition, the strategy was applied in a stock portfolio composed of the companies with the highest trading volume. These tests considered the period from 2003 to 2013. In most cases, positive and superior returns were obtained in comparison with the main stock market indices from the USA. It can be concluded, therefore, that the divergence pattern of the MACD indicator was efficient in considering reversals of stock price trends in the period considered.