One of the appeals – and drawbacks – to technical analysis for some are the many, many ways of analysing historical data on a chart. Before home computers and sophisticated investing software, many charts were either in paper format or on dedicated terminals, primarily used by City institutions. Now of course, you are only ever a couple of clicks away from constructing a chart bristling with indicators, candlesticks, moving averages and Fibonacci retracements.
The level of sophistication we have today would have been unthinkable to a new chartist like me back in the mid-1990s – but I think it comes with its own set of problems. I love the phrase “analysis paralysis” – where you have so many different techniques you are watching you can’t actually decide whether you should be buying or selling. When even free software from brokers has multiple indicators, it is perhaps not too surprising that the novice chartist can quickly suffer from information overload.
So, is there a happy medium – a way of using a particular indicator to help with the decision as to whether to buy, sell or do nothing – and not end up with a price chart that looks like an impressionist painting? This time around we will take a look at a potential solution to this, and see where the MACD indicator could fit into an investing or trading strategy….