The SmallCapData screener uses multiple complementary indicators to assess momentum and volatility. Among these, MACD and Bollinger Bands serve distinct but related roles.
MACD (Moving Average Convergence Divergence)
MACD measures the relationship between moving averages of different periods. When the faster average pulls away from the slower one, it signals accelerating momentum. When they converge, momentum may be fading.
The screener uses a customised MACD configuration rather than the standard textbook parameters. The specific periods and signal thresholds are proprietary and optimised for the volatility profile typical of ASX small-caps.
Bollinger Bands
Bollinger Bands create a dynamic envelope around price based on recent volatility. When the bands widen, volatility is expanding. When they narrow, volatility is contracting.
Volatility Compression
One pattern the screener monitors is volatility compression — periods where the bands narrow significantly relative to their recent average. Historically, prolonged low-volatility periods tend to precede significant moves, though the direction of that move is unpredictable.
The screener's detection threshold for compression events is proprietary and accounts for sector-specific volatility norms.
How They Work Together
These indicators provide different lenses: MACD captures the direction and strength of momentum, while Bollinger Bands capture the volatility context. A strong MACD signal during a volatility expansion tells a different story than the same signal during a quiet market.
All technical indicators are lagging by nature — they describe what has happened, not what will happen. They are used as inputs to a broader model, not as standalone signals.