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Technical Studies #2: Using the MACD for Coffee Trading

As part 2 of our series on #TechnicalAnalysis, today we discuss one of the most useful and popular technical indicators for #commodity and coffee trading: the Moving Average Convergence Divergence (MACD).

In this article, we will discuss how this indicator is constructed, how we can trade with it and what the limitations are, all while using examples from our favorite coffee futures "C" market (KC).

If you are interested in learning more about technical analysis, this indicator (along with many others) are taught in detail as part Day 3 of the Coffee Trader's Course.

It is also part of the suite of indicators that we use to predict the daily close with our Coffee Valuation Score. I contend that the MACD can be an effective early warning indicator of price shifts ... but only to a point. We have to understand its limitations.

Let’s start at the beginning: What is the MACD and how is it constructed?

The MACD is a trend-following technical study that measures Market Momentum and can generate buy and sell signals. The acronym MACD stands for Moving Average Convergence Divergence and the name does a pretty good job of explaining how it is constructed.

It is calculated by subtracting