THE HAnDbook of TEcHnIcAl AnAlySISfigure 11.22 Detrending Moving Averages on the Daily Chart of GBPUSD.
Source: MetaTrader 4
figure 11.21 200-Day Moving Average Acting as a Filter on the Daily Chart of
Dell Inc.
Courtesy of Stockcharts.com
(2) Detrended to be an oscillator
We may also subtract the rolling values of one moving average from another, ren-
dering the difference between the two averages. Since the resulting data represents
only the difference in values for each period over the lookback period, all trend in-
formation is lost. Hence, the term detrended. Figure 11.22 shows two EMAs, spe-
cifically, the 12-day and 26-day EMAs, converging with and diverging from each
other as price rises and declines. The two EMAs are detrended against one another
and the resulting difference is displayed in the form of an oscillator in the window
below. This is in fact the MACD indicator. During a strong uptrend or downtrend,
the 12- and 26-day EMAs diverge, causing the MACD to rise or fall, respectively.