MACD Based Price Forecasting [LuxAlgo]

22 Feb

The MACD Based Price Forecasting tool is an innovative price forecasting method based on signals generated by the MACD indicator.

The forecast includes an area which can help traders determine the area where price can develop after a MACD signal.

🔶 USAGE



The forecast returned by the tool allows users to obtain a general picture of how price tends to progress after a specific MACD signal. The forecast is constructed based on percentiles of previous price progressions done after a specific MACD signal is generated.

Users can change which condition is used to generate MACD signals from the "Trend Determination" dropdown menu, with "MACD" determining trends based on whether the MACD is positive (uptrend) or negative (downtrend) and "MACD-Signal" determining trends based on the position of the MACD relative to its signal line, with an MACD above the signal line indicating an uptrend, else a downtrend.



Users can introduce bias to the forecast by changing the "Average Percentage" setting, with values above 50% introducing bullish bias, and below bearish bias.



It can be possible for the forecast to highlight potential reversals depending on the selected forecasting horizon as long as reversals can be observed on trends detected by the MACD.

🔹 Forecasting Area



The forecasting area can help visualize the area that will likely contain price after a specific signal. The area width is based on the "Top/Bottom Percentiles" settings, with a higher "Top Percentile" value returning a higher top bound and a lower "Bottom Percentile" value returning a lower bottom bound.

These areas can also serve as potential support/resistance areas.

🔶 SETTINGS

• Fast Length: Fast length of the moving average used to compute the MACD
  
• Slow Length: Slow length of the moving average used to compute the MACD
  
• Signal Length: Length of the MACD moving average.
  
• Trend Determination: Method used to determine a trend direction from the MACD.
  

🔹 Forecast

• Maximum Memory: Determines the maximum amount of prices recorded at each steps succeeding a signal. Lower values will return forecasts with a higher degree of variability.
  
• Forecasting Length: Forecasting horizon in bars, this value only serves as a limit of the forecasting horizon and might not be reached depending on user selected MACD settings.
  
• Top Percentile: Percentile value used to determine the upper bound of the forecasting area.
  
• Average Percentile: Percentile value used to determine the forecast.
  
• Lower Percentile: Percentile value used to determine the lower bound of the forecasting area.