A Study On The Effectiveness Of Moving Average Convergence And Divergence (MACD)

Abstract

In the digitalized word, it becomes easier to trade in stock but earning profit requires some analysis before investing. Analysis in stock can be categorized into fundamental and technical. Fundamental analysis is based on the performance, financials and future prospects of the company whereas technical analysis is based on the historical market data of stock mainly on stock price and volume. Technical analysis is done through charts and statistical indicators. One of the most popular technical analysis tools is Moving Average Convergence and Divergence shortly called as MACD. MACD can be interpreted in two ways i.e. through Centreline Crossover Strategy and Signal Line Crossover Strategy. The objective of this study is to analyse the effectiveness of the MACD with reference to select stocks in Information Technology Sector being traded in BSE. For this purpose, a comparative study on profitability is made among two strategies of MACD and with Buy and Hold strategy. In the Buy and Hold strategy itself, analysis is done for two variations i.e. buy based on MACD centreline crossover and then hold and Random buy and hold. Extended Internal Rate of Return (XIRR) has been used to measure profitability. Based on the sample data for the population taken for analysis, Centre Line Crossover Strategy is same or more profitable than Signal Line Crossover Strategy and Random Buy and Hold strategy.