D. General Principles of the MACDicator Trading System 1. Trends versus Channels: The trader must first be aware of whether the stock being traded is in a trend or a channel, since most indicators, including the 4MACD, typically only work either in a trend or in a channel, but generally not in both. The MACDicator Trading System is neutral overall and contains an equal number of trending indicators (4) and channeling or oscillator indicators (4) plus a neutral indicator, Bollinger Bands, (1) for a total of 9 buy/sell indicators. These 9 buy/sell indicators, which excludes the 4 additional auxiliary indicators LR, OBV, BOP, and VOL, are as follows in the 3 windows from top to bottom (* strongest indicators): 3 EMA…….....Top Window……..Trend Indicator BBs 5, 15……Top Window……..Neutral Indicator RSI 5.3………Top Window……..Channel Indicator 4MACDs……..Middle Window….Trend Indicator * TSV 16……..Middle Window….Trend Indicator RSI 21.5…….. Middle Window….Trend Indicator PROC 5……...Bottom Window….Channel Indicator STOC 5/3/3….Bottom Window….Channel Indicator * MS…………..Bottom Window….Channel Indicator 2. In principle, the 4MACD functions like a signal light, and the price bars tend to follow in the direction of the green MACD bars. The route or pathway of the 2 major trending indicators (TSV 16 and RSI 21.5) across the top or bottom of the 4MACD bars (in the middle window) helps to determine the major buy or sell action based on the color of the MACD bar that the 2 indicators are crossing. The red and blue MACD bars are inverse indicators to the green and yellow bars, which mirror the price movements. Interpretation and use of the 4MACD is outlined in detail under the Trading Rules. 3. When the MACD Blue starts to appear on the top MACD Red bars, it means that a trend change upward or bull trend may be coming. It is not an entry or exit point, but just advanced notice of a potential trend change. 4. When the MACD Blue starts to appear on the bottom MACD Red bars, it means that a trend change downward or bear trend may be coming. It is not an exit or entry point, but just advanced notice of a potential trend change. 5. The ideal entry/exit points for trades are typically just past the extreme points of the 4MACD bars and secondarily when the TSV 16 or RSI 21.5 is crossing the mid-line or zero line. 6. Ignore all MACD buy and sell signals if the individual bars are very short (signals less valid) and the central bar or longest bar in the diamond shaped pattern of the 4MACD histogram is definitely inside the 30 % and 70 % lines. The MACD bars are all scaled on a relative basis, so if all the diamond shaped patterns are currently well within these lines, the stock is generally in a channel or in a small trend within a major channel. MACD is typically a trending indicator and tends to work only in trends and not in channels. 7. If the MACD bars are all very short and in between the 30 % and 70 % lines, and the 2 major trending indicators (TSV 16 and RSI 21.5) in the middle window are both just slightly above or below the mid-line, then typically hold the current stock position and wait for further price action. 8. When the 4MACD is short and hugging the mid-line, watch for movement up or down, but do not exit or enter any position. The shorter MACD bars represent a channel (little or no trend) and neither an overbought nor an oversold condition, which is a hold position. The longer MACD bars represent a trend and an overbought or oversold condition, which typically results in a sell or buy signal. 9. The 4MACD Histogram allows for observation of the current trend and an early forecast of an impending change of trend. If the price trends upward and the MACD bars on the top histogram during this period diverge downward, the price trend will likely change downward shortly. If the price trends downward, and the MACD bars on the bottom histogram during this period diverge upward, the price trend will likely change upward shortly. 10. A 4MACD divergence occurs when the MACD bars start to move in the opposite direction of the respective price bars. When the green and yellow MACD bars on top diverge from the price bars (Price bars go up and the MACD bars go down), look for a possible reversal in the direction of the price to follow shortly, with the upward price surge weakening, signaling a possible price trend change downward. Either the price will reverse or the rally will just pause. This action is MACD bar divergence, not Chris Manning’s MACD peak divergence. When the MACD bars on top converge with the price bars (Price bars go up and the MACD bars go up or both move in the same direction), the direction of the price will probably remain the same and stay in the current trend. 11. When reading a price bar chart, the right edge of the close mark on the price bar lines up with the MACD and volume bars. The cursor runs on the right side of the close mark on the price bar through the middle of the corresponding MACD and volume bars. If the price bar is on a candlestick chart, the cursor runs through the middle of the candlestick and the corresponding MACD and volume bars. 12. The 4MACD works with all time frames and zooms, but a zoom setting of 7 or 8 is suggested for easier and correct reading of the 4MACD signal and all of the other indicator signals. 13. The 4MACDs must be listed in the chart template in the proper order, preferably: Blue, Red, Yellow, Green. The faster MACDs need to be listed or drawn after the slower ones. Blue (slower) precedes Red (faster), and Yellow (slower) precedes Green (faster). When the trend changes, the faster ones react first and grow shorter faster. Because they are listed or drawn later, they are drawn and appear on top of the slower ones. If they weren’t, you wouldn’t be able to see them. 14. All stand-alone moving averages under 50 period should be faster exponential settings, and moving averages of 50 or above should be simple settings. The major brokerage houses predominantly use the 50 period and 200 period simple moving averages, which represent major market support and resistance points. 15. All moving averages on indicators (dotted lines) should be simple moving averages (the curve is smoother and the signals are actually sooner or faster than if exponential). All indicator lines (solid lines) above their simple moving average lines (dotted lines) are bullish, and all indicator lines (solid lines) below their simple moving averages (dotted lines) are bearish. The same colors are used on the chart template for the indicators and their simple moving averages for easy recognition. 16. When reading all of the indicators, the moving average crossovers as buy/sell signals should be distinct or sharp. Discount all nearly parallel weak or flat crossovers as insignificant or possibly neutral signals, as reversals can occur rapidly, especially on the last incomplete bar. 17. When the 10 period exponential moving average crosses up over the 20 period exponential moving average, this indicator confirms the trend change and the previous buy signal of the 3 period exponential moving average crossover, and when the 20 period exponential moving average crosses down over the 10 period exponential moving average, this indicator confirms the trend change and the previous sell signal of the 3 period exponential moving average crossover of its 4 period simple moving average. 18. The 10 period and 20 period exponential moving averages are trending indicators, which are commonly used by most technical traders. This indicator, in general, is slower than the other indicators and is therefore not used as one of the 9 primary buy/sell indicators. It works only in trends and not in channels and is slower than the crossover of the 3 period exponential moving average with its 4 period simple moving average. The 10 period and 20 period exponential moving averages are used primarily for price bar support and resistance on both of these lines. 19. The 10 and 20 period moving averages are invisible on the chart template to avoid clutter, but they can be switched to visible to view the indicator lines when needed. 20. The Bollinger Bands represents a volatility range or band of prices around a simple moving average. The optimum period to match the periods of the 4MACD is a 5 bar simple moving average, which is the mid-line or mean within the Bollinger Bands. The standard deviation is 2 standard deviations above and below the moving average or a width of 20, which represents an estimated 95 % of the price volatility range. The Bollinger Bands have been reset from a 20 width to a 15 width (1.5 standard deviations) or approximately 75 % of the standard width and price volatility to allow one to see the initial bull price moves and the initial bear price moves outside the bands when the bands constrict. When the close of the price bars moves outside the bands, the current trend generally continues. A top or bottom made outside the bands followed by a move made inside the bands may create a reversal in the trend, when the price bars cross the mid-line and the close of the price bars moves outside the opposite band. 21. The Linear Regression (LR) line is the best average line between all of the prices during a given period, thereby showing the trend clearly and accurately. The slope of the LR line shows whether the trend is up or down for the most recent 5 bar period, and indicates where the next price point is most likely to occur. The 5 bar period matches the 5 bar simple moving average line of the Bollinger Bands. 22. On Balance Volume (OBV) is a cumulative volume oscillator that essentially measures positive and negative volume. The OBV line normally confirms the price direction. However, if it diverges from the price direction, look for a change in the price trend. The OBV Line is related and has a similar shape to MoneyStream (MS), but does not contain a price factor. 23. The Balance of Power (BOP) is a measure of the underlying strength of the stock that indicates accumulation (green), neutral (yellow), or distribution (red). It is not a buy or sell timing indicator and does not follow price, but it is especially helpful at potential tops and bottoms by giving an indication of the direction of the price. Accumulation (green) represents systematic buying and precedes distribution (red), which represents systematic selling at any price point, and distribution (red) precedes accumulation (green) at any price point. Price tends to go up after the red bars, stay about the same after the yellow bars, and go down after the green bars. If candlesticks (silver) are used in place of bars on the price chart, the BOP colors on the price bars can be changed (as an option) to green, silver, and magenta to mute the colors and make the chart template easier to read. 24. If the Volume (VOL) bars diverge from the Price bars, a change in price trend may occur shortly.