Ask Colin

The charts I use show a Weekly Histogram updated on a Friday only, using Weekly (26,12,9). I was wondering if there is a way to have a Weekly MACD Histogram update daily (Monday to Friday)? Would I do this by multiplying the above time periods by five (5)? That would mean a MACD (130,60,45). Would this be correct or completely invalid?

The convention for weekly indicators is that you use the closing price on Friday.

If Friday is a public holiday or the market does not open on that day, you would use the Thursday close, or the close of the last day in the week for which the market was open.

If the individual stock does not trade on the Friday, you could proceed as for the market as a whole, but you should be careful of the results of using the indicator on a thinly traded stock.

Different software will use different schemes. Possible are:

1. Do not calculate the current week until the week is finished. This would be unusual, but vital if you are doing system testing on weekly closes.

2. Use the last closing price available for the current week. This is what Insight Trader does. Again, you must be very careful with this. If your system calls for action on an indicator based on weekly close, all it is telling you is that there will be a signal or not IF THE WEEK CLOSES UNCHANGED.

3. Use the last five trading days and recalculate all previous periods so they end on the same day of the week eg If doing this calculation on a Thursday, all weeks will end Wednesday. This is what MetaStock does (I am told - I do not use it). This is also dangerous - You can have a signal and act on it, only to have the signal vanish when you have another day's data.

If you are running any system on weekly data, incomplete weeks should really be disregarded.

The proposal you made is a possible solution. The results of calculating a moving average of 9 values and 45 values will be subtly different. So, it is going to depend on what you want to do with it. I have calculated a MACD both ways in the following chart.

You can see that the two pairs of lines follow each other fairly closely. However, closer examination will show that signals can be given two or more weeks earlier or later depending on the circumstances. This may or may not be important to what you are trying to do.