Sunday, May 30, 2010

Best value for parameters used in MACD

What are the best or most optimum values to use for the parameters in MACD calculation ?

The default values as suggested & used by most market technicians is 12,26,9. Is this a holy grail? As in does this necessarily have to be the best possible values - no, i don't think so. One can use whatever values one wants, and ofcourse the results would vary accordingly. It is not necessary to use the default values only. One can tweak around to find other values which would give better results. In some markets lower values work better, in some higher values work better. In general, what I have seen is that for markets which are very trending, having a lower value for the shorter moving average gives better results.

The best possible values can only be determined by back-testing but then that again is prone to curve fitting and might not necessarily work in the future.