Description
The Warning Symbols study is a technical indicator developed by Barbara Star. Based on the well-known MACD, it focuses specifically on its trending and momentum properties. In Warning Symbols, MACD is analyzed in relation to the zero level, which produces important trading signals. In addition to MACD analysis, this indicator displays “warning” signals (hence the name) based on the behavior of the price plot in relation to moving averages.
In Warning Signals, MACD is interpreted based on the following factors: its sign, direction, and divergence. As in many other indicators, positive MACD is regarded here as an uptrend sign and negative MACD is meant to signify the downtrend. MACD fluctuations around the zero line often signify weak momentum in a sideways trend. When MACD is positive, its behavior indicates the momentum: rising values often indicate the rising momentum, while declining values might signify its ongoing depletion. The latter might result in a corrective pullback or even in a trend reversal, another sign for which is the divergence from the price plot. By default, the price plot is colored based on MACD values: when it’s negative, the bars are colored red, when it’s positive, blue.
In addition to the MACD, the study calculates exponential and weighted moving averages of close price, which are used to issue warning signals. It happens when:
- Price reaches its high above the weighted moving average, but the trade fails to close above the exponential average;
- Both close price and the exponential average are greater than the weighted average.
Input Parameters
macd fast length
|
Defines the length for calculation of the faster average in MACD. |
macd slow length
|
Defines the length for calculation of the slower average in MACD. |
weighted average length
|
Defines the length for calculation of the weighted moving average. |
exponential average length
|
Defines the length for calculation of the exponential moving average. |
paint bars
|
Defines whether or not to color the price plot according to MACD values. |
Plots
WeightedAverage
|
The plot of the weighted moving average. |
ExponentialAverage
|
The plot of the exponential moving average. |
MACDAboveZeroCrossover
|
Points where MACD crosses above the zero level. |
MACDBelowZeroCrossover
|
Points where MACD crosses below the zero level. |
UpperWarningSymbol
|
The plot that marks warning points of the first type. |
LowerWarningSymbol
|
The plot that marks warning points of the second type. |
Further Reading
1. "Zero In On The MACD" by Barbara Star, PhD. Technical Analysis of Stocks & Commodities, May 2016.
Example*
*For illustrative purposes only. Not a recommendation of a specific security or investment strategy.