Question

In: Economics

Using the MACD trading rule, generate a trading signal. Choose the response which best answers the...

Using the MACD trading rule, generate a trading signal. Choose the response which best answers the question.

Select one:

a.

If Fast MA is greater than or equal to the Slow MA, then “buy”. If Fast MA is smaller than or equal to the Slow MA, then “sell”

b.

If the difference (Fast MA – Slow MA) is greater than or equal to zero, then “buy”. If the difference (Fast MA – Slow MA) is less than zero, then “sell”

c.

If Fast MA is greater than the Slow MA, then “buy”. If Fast MA is smaller than the Slow MA, then “sell”

d.

If the difference (Fast MA – Slow MA) is greater than zero, then “buy”. If the difference (Fast MA – Slow MA) is less than or equal to zero, then “sell”

Solutions

Expert Solution

c. If fast MA is greater than the slow MA then "buy". And if fast MA is smaller than the slow MA, then "sell". It is the best answer using the MACD trading rule, generate a trading signal. this strategy we use two averages of different window sizes. Many different window lengths combinations defining the fast and slow MA can be considered for this strategy.

a. If fast MA is greater than or equal to the slow MA, then "buy" and if fast MA is smaller than or equal to the slow MA then "sell". Is not the best answer because if fast MA is greater than slow MA then we buy but if fast MA is equal to slow MA then we don't buy.same as if fast MA is smaller then slow MA then we sell but if fast MA is equal to slow MA then we don't sell.

b. If the difference (Fast MA – Slow MA) is greater than or equal to zero, then “buy”. If the difference (Fast MA – Slow MA) is less than zero, then “sell” is not the best answer in MACD trading rule because when fast MA crosses the slow MA upward then we buy and if slow MA crosses the fast MA upward then we sell.

d. If the difference (Fast MA – Slow MA) is greater than zero, then “buy”. If the difference (Fast MA – Slow MA) is less than or equal to zero, then “sell” is not the best answer in the MACD trading rule because when the fast MA crosses the slow MA upward then we buy and if slow MA crosses the fast MA upward then we sell. Zero does not consider in the MACD trading rule.


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