Moving Average Gap (MAG)
With the Moving Average Gap, the difference between a long and a short MA is shown. This difference is plotted as a histogram which oscillates about the zero line.Calculation
The shorter SMA is subtracted from the longer.Formula
The parameters x and y of the SMA can assume values between 1 and 500. The standard setting is x = 10 and y = 3.Interpretation
One can use the indicator to generate trading signals, to indicate overbought or oversold markets, or one can consider divergences between the indicator and the underlying instrument. If the indicator rises above the zero line, this is regarded as a buy signal; if it intersects the zero line going down, this is a sell signal. Very high indicator values point to an oversold market, whilst very low indicator values reveal an oversold market. These interpretations are more reliable in a trendless market than in one with a clear trend. Divergences between the indicator and the underlying instrument show a weakening of the trend.
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