THE 4MACD SYSTEM

BY ROBERT CUMMINGS

There is a time to be long, a time to be short, and a time to go fishing.

- Jesse Livemore

Technical Analysis: The study of charts utilizing specific price patterns and indicators,
in an attempt to understand future trends or directions of a specific stock.

A chart, utilizing Technical Analysis, is a visual tool designed to tell you what other
traders are doing, depicted as an upward or downward movement of the price and
volume. These movements are representing the FEAR AND GREED OF OTHER
TRADERS. The 4MACD SYSTEM has been designed to graphically display other
traders' activity, with the goal of improving the user's probability of making a higher
percent of profitable trades on a consistent basis. To master this system, one will need to
look at the patterns given (in relation to any specific stock), in numerous time frames.
This system is stock specific-match the stock to the pattern, analyze what you see, make
a decision based on that which is shown. It is also time specific-match the time frame
-4 day to 1 min time bars. Remember, dont force the trade.

The FOUR MACD System introduces the very simple COMBINING OF 4 MACDs into
a single indicator-i.e. To be interpreted as a single indicator in one window. It is designed
to show current movements as a positive and negative image, (green, yellow, or red blue)
and MUST be used in conjunction with Bollinger Bands, Price, Moving Averages,
Money Stream, Time Segmented Volume (a better On Balance Volume improvement by
Don Warden), Stochastics and Wilders Relative Strength Indicator. It has a contrarian
indicator built into the system-the RED/BLUE COLUMN. The 4MACD are entered in a
specific order for the purpose of producing a graphic image allowing for easier
visualization of the changes that are occurring in the moving averages that predict
direction of price movement. This system was originally designed for the INTRADAY
and SWING traders with a desire to trade either LONG or SHORT. Although designed
for the intraday and swing trader, the long-term investor will also find it useful.

The visual effect is obtained by switching the order of entry values in the MACD. For the
negative red blue bars, the fast average is larger than the long average-opposite of how
you normally would enter the values in a MACD. The green and yellow bars are entered
as you normally would-a short fast which is a smaller number than the slow long number.

The chart is congested with all the indicators. Set up 2 tabs and substitute the Wilder
Relative Strength for the TSV printed over the MACD window to relive some of the
congestion. To further help you to understand this concept, enter each indicator one at a
time and review its response to price change in several time frames-9-day to 1 minute. I
would strongly suggest you enter the following settings before reading the rest of this
paper. It will make it much easier to follow the commentary that follows.
Settings:

Top window:

Candlestick price chart: zoom

10 MA (Blue, wide), Exp
20 MA (Red, wide), Exp
BOLLINGER BANDS, (Magenta, wide), 7/21
Money Stream (Yellow)

Middle window:

1. MACD, (Blue) Exp, 17/14/5, Histogram Wide

2. MACD, (Red), Exp, 17/8/5, Histogram Wide
3. MACD (Yellow) Exp10/16//5 Histogram Wide
4. MACD, (Green), Exp, 5/10/5, Histogram
5. TSV (White), Exp, 14, 3 MA of the TSV, (Blue), Exp, 3 day Both
wide lines.
6. WRSI 6/3 (White) with a 3 MA Exp. (Magenta)

Bottom window:

Stochastics,
Period, 17
SK, (Cyan), 3
SD, (Red), 3

These setting are not holy--minor adjustments can be made to match your trading style.

Discussion:

The MACD Histogram negative concept depicts the negative forces working against the
price. It is graphically shown as the red/blue columns on the chart. Combining this with
the positive green and yellow, the 4 MACD HISTOGRAM become the centerpiece of a
trading system. MACD should not be used in a vacuum. Look at all the indicators in
Sync. The yellow and blue act as alerts of change in direction of the moving averages
and this in turn is reflected in the movement of the stock price.

The MACD values are staggered so that price changes will be detected in the green bar
(the fast MACD moving average} exposing yellow (slow moving average of MACD) and
the same for the negative red and blue column. It can be said that the green is bullish
indicator and the red is bearish indicator.
As an illustration: think of a traffic light with 4 colored lights. This stoplight has the
usual green light with a yellow caution and the red has a blue caution light. Use this as a
graphic aid in the interpretation of a chart. Visualize this multi-colored MACD, (shown
in the middle window), as you would a traffic light while driving down a street. Do you
see a green, yellow or red light? Dependent on the color of the light, do you start
changing the momentum, (speed of movement), of your car, whether accelerating or
slowing down? What are the other cars, (indicators), around you doing? Are they
stopping or speeding up. Are they starting to move into your path, possibly causing you
to slow down or stop unexpectedly? (Red MACD and Blue bars). The experiencing of an
unexpected gap up or down in price can be compared to a car hitting you that has run a
red light, unexpected and unable to predict.

Think of going short as driving the wrong way on a One Way Street. You know you can
make it, and benefit from your change in direction, if the traffic moving in the opposite
direction has currently stopped because of a red light. When the light changes, and the
traffic once again starts moving, it would then benefit you to once again turn and move
with the flow of traffic.

The difference between this example of a street light and that of a changing MACD is
that at a glance with the MACD you can see all facets of the current condition or that of a
coming change. You can see the direction of the current momentum. You can see the
initiation of a change; you can then see that change occur as the price and momentum
move in an opposite direction.

The price on the MACD, relative to the centerline, seems to flow in the direction of the
green bars. If the Green bars are shortening but moving from below the centerline in an
upward movement, the price should soon follow. If the Green bars are above the
centerline but shortening and moving down; again the price should soon follow. The
yellow tip depicts the change of momentum, or, a need to use caution, before it actually
occurs (divergence).

When there is divergence of the price from the MACD, IT IS IMPORTANT TO LOOK
TO THE OTHER INDICATORS FOR GUIDANCE. WHERE IS THE PRICE
RELATIVE TO THE BOLLINGER BANDS, IS THE STOCHASTICS FLAT OR
TUNING IN THE DIRECTION OF PRICE AND ACROSS THE 20, 80 LINES, IS THE
TSV CROSSING, WHERE IS PRICE RELATIVE TO THE MOVING AVERAGES?
CONFIRMATION, CONFIRMATION AND MORE CONFIRMATION. For example, if
the price is in divergence to the MACD indicator, the Stochastic will remain flat
above or below the 20/80 line.

Look at the chart in several time frames, starting at the weekly and moving down to the
one minute. This should allow you to get a feeling for the trend. You should find this
exercise helpful. BASED ON YOUR TRADING PERSONALITY, be it day trader, swing
trader or long term investor; pick the time frame that is best for you and the stock.
SWING TRADERS--LOOK AT THE 1-HOUR and 30 MIN. CHARTS FOR CLEAN
ENTRY AND EXIT POINTS. YOU WILL FIND IT MUCH BETTER THAN END OF
DAY CHARTS IN MANY INSTANCES.

For intraday trades, I personally use the 15 AND 10 minute time frames to find and
follow the stock but switch to 1 minute when entering or exiting the trade for the best
price. I also use the 30 min and 1 hour in some low volume stocks. Some stocks will
trade better in different time frames. Find the one that you are comfortable with.
Remember, each stock has its own time frame personality. When understood, this time
frame personality, whether yours or that of the stock, will help promote more successful
trades.

This analogy may seem corny but it helps to let the colors talk to me. It provides for
better timing, whether entering or exiting the trade. This method allows one to get in
earlier as well as stay in longer for more profits. It will also keep you out of some
BAD trades.

An example given by another reader states:

Think of the 4MACD as a traffic light with 4 lenses, in a line along your axis of
sight, (green in front and red at the rear). These lenses all rotate at different speeds,
perpendicular to your line of sight. Each lens has a colored half and a clear half so
that its effect is only seen above or below the axis of rotation at any one time. Unlike
an ordinary traffic light, which changes suddenly, this one changes continuously and
gradually. You can sense coming changes by the increasing and decreasing amount
of light visible above or below the axis of rotation.

There is an incredible amount of information and knowledge to be derived from reading

the WORDEN NOTES, daily. This is an accumulation of many peoples desire to achieve
the same goal but using a different way and means to get there.

I encourage you to experiment with different settings when using the FOUR MACD
Method. Plot the MACDs as a line chart and see how it reacts to the price change in
different time frames. Using another tab overlay Money Stream in the price top window
for another perspective. Combine the 4 MACD with your other indicators for greater
insight. This exercise will improve your ability to see that which the chart is telling
you.

The Trade Setup:

There are three entry/exit points for a trade, the Extremes(oversold and overbought)
position of the MACD and that of a compression switch.(Crossover).

The Ideal Setup is when the columns are at their longest point, either above or below
the midline (0) or when the green flips up above or below the 0 midline, the price is at the
top or bottom of the Bollinger Band, the TSV is crossing its average, preferably at the
midline (0), but not necessarily required for a profitable trade, and the Stochastics
moving average should be crossing up above the 20 or moving down across the 80. The
WRSI will be crossing the midline on the MACD BAR at or close to the price reversal.

The exit is just the reverse of the entry setup.

The above 30-minute chart of QLGC has almost everything you will see in a chart -gaps,
short trades, and the long trade. . This is just an example of the color patterns you will see
and how the other indicators work to confirm the trade.

Notice how the WRSI white line crosses the midline on the bar of the MACD, the TSV
moving in the direction of the price, Stochastics crossing and moving above or below the
20/80 line, and the Money Stream changing where there is price reversal. Conformation,
conformation, and more conformation.

For Swing traders:

For high probability trades, look for stocks where the Stochastic has remain flat above the
80 or below the 20 line for several days and then crosses the line. Look at the MACD to
see if it is in an overbought or oversold (Max or extreme column) and the TSV is
crossing its average (is extra strong if moving across the 0 line), and the WRSI will be
approaching or crossing the midline. You can expect a 2-10 day price move up or down.
Check it out on about 40 charts to learn the other indicators in Sync.
ZOOMING and The HIDDEN TRADES:

One weakness of all indicators is they will adjust as more data is collected. With the 4
MACD this is seen in the chart with the magnitude of the bars. This is important because
the success of using the system is to trade from the maximum oversold and overbought
position displayed by the columns. The bars associated with the large price movement
will distort columns following a price spike. Shorter bars that follow display this. For the
intraday trader, this can hide very good trades. To correct for this, you can zoom in, and
in some cases shorten the time frame, to display fewer bars to remove the spiking bars.
Many times you will see the shorter bars become longer indicating a trade can be made.

Gaps:

Most gaps occur at opening. The MACD uses moving averages in its construction. The
gap distorts the data for the first few minutes until more data is collected. There are many
books written about trading in the first hour of the opening and I suggest you study this
information carefully. The 4 MACD be very useful dunning this time of day. This is the
only time I will watch a 1-minute chart other than to find an entry or exit price.

After enough data is collected, I will move up to the 5 min and then to the 10 min. chart.
Sometime in the first 5-15 min. you will pick up a second reversal or gap filling
movement. Find several stocks and look at the 1 min, 5 min, and 10 min charts for the
first 30 minutes of the opening. You will be surprised to see the fast $500 you can pick
up.

TXN and QLGC are good stocks to review. Sometimes you can pick up $1000-$4000 in a
day in these stocks with the 4 MACD.

Conclusion:

The 4 MACD is an excellent tool to use with your own system. Some of my favorite
trading patterns I like to trade are the BB squeeze, the 3-5-price drop, breakouts from
consolidation, filling gaps and intraday reversals.

Trade the stock that fits the pattern--DONT FORCE THE TRADE. LOOK AT HOW
THE PATTERN/TIME FRAME HAS WORKED IN THE PAST WITH THE STOCK
AND IN WHAT KIND OF MARKET.

CONFIRMATION, CONFIRMATION. CONFIRMATION. WITH PATIENCE TO

WAIT FOR THE TRADE TO COME TO YOU AND DONT FORCE THE
TRADE-IF YOU DONT OBEY THIS RULE, YOU WILL BE AN INVESTOR
WAITING FOR THE STOCK TO RECOVER WHICH IT MAY NOT. LOOK AT
ALL THE STOCKS THAT WERE $100, $50 ETC THAT ARE NOW SELLING AT
$5-20.
REMEMBER: IF THE TRADE DOES NOT GO THE
WAY YOU EXPECTED -- CUT YOUR LOSS BY
GETTING OUT FAST.
Happy trading.
Robert Cummings

4 revision 8/12/02

AmiBroker Code

4MACD - The code was first developed in TC2000 and consists of four overlaid MACD
histograms, made to display with different colors. This produces a "visual" signal and
actions are taken based on the color combinations. For example:

When red is on top and green on the bottom - you want to be short or in cash.

There are two additional colors that help one determine when to enter and when to exit.

When green is on top and one notices that the tips of the green histogram are turning
yellow and the red histograms on the bottom are getting blue tips - go to cash now or
short now.

When red is at the top and starts to form blue tips or yellow tips are forming on the green
while green is in the bottom of the chart - one wants to go long with the fund or stock.

Other indicators should also be used:

Bollinger Bands
Price
Moving Averages
Money Stream
Time Segmented Volume (On Balance Volume - Worden modified)
Stochastic
Wilder's Relative Strength Indicator
 /* Ken's Challenge = 4MACD*/

//=Red===================
Gr1 = MACD(17,7);
Gr2 = Signal(17,7,5);
Diffr = Gr1-Gr2;
Plot((LastValue(Highest(diffr))/LastValue(Highest(diffr)))
*Diffr,"Diff",colorRed,2+4);

//=Green===================
Gr1 = MACD(5,13);
Gr2 = Signal(5,13,5);
Diffg = Gr1-Gr2;
Plot((LastValue(Highest(diffr))/LastValue(Highest(diffg)))
*Diffg,"Diff",colorBrightGreen,2+4);

//=Blue===================
Gr1 = MACD(17,14);
Gr2 = Signal(17,14,5);
Diffb = Gr1-Gr2;
Plot((LastValue(Highest(diffr))/LastValue(Highest(diffb)))
*Diffb,"Diff",colorBlue,2+4);

//=Yellow===================
Gr1 = MACD(12,18);
Gr2 = Signal(12,18,4);
Diffy = Gr1-Gr2;
Plot((LastValue(Highest(diffr))/LastValue(Highest(diffy)))
*Diffy,"Diff",colorYellow,2+4);

Plot(0,"",7,4);
GraphXSpace=5;

// END CODE From: "wwbarnard_1999" <wbarnard@cox.net>