Getting started with indicators: MACD / PE / PB in one picture

This is the intro to Stock Knowledge 101 — for readers who have never touched technical or valuation indicators. After this one page you’ll have the overall framework needed for the later single-topic deep dives like K04 / K05 / K09.

One-line summary: MACD reads “momentum and direction”, PE / PB read “how expensive it is”. Use the trio together: right direction + enough momentum + reasonable valuation = a safer entry.

1. What does each of the three indicators do?

• MACD (technical · momentum)

  • Full name: Moving Average Convergence Divergence
  • What it does: draws the “gap between fast and slow moving averages” as a line + red/green bars, to read the strength and direction of price up/down movement
  • Where to see it: the panel below the price chart — DIF line / DEA line / red-green bars
  • How to use: golden cross = bullish, death cross = bearish, divergence = reversal warning (see [K05] / [K05] / [K05])

• PE (Price/Earnings ratio) (fundamental · valuation)

  • Full name: Price / Earnings per Share (price ÷ earnings per share)
  • What it does: how many years to break even at current earnings (theoretical)
  • Reading the number: PE=10 → break even in 10 years (“cheap”); PE=100 → 100 years (“expensive”)
  • How to use: compare within the same industry + PE percentile ([K09]). Lower is not always better — depends on industry and growth

• PB (Price/Book ratio) (fundamental · valuation)

  • Full name: Price / Book value per Share (price ÷ net assets per share)
  • What it does: how much the market price marks up the company’s “net worth”
  • Best for: asset-heavy sectors like banks, real estate, resources ([K09])
  • How to use: PB<1 often means the market doubts asset quality; PB>5 is pricey (industry-dependent)

2. One picture to understand the trio

3. How to use the trio

4. Traps beginners fall into

1. Blind faith in a single indicator: buying on MACD golden cross or low PE alone is wrong — a golden cross can be a bounce midpoint, a low PE can be a “value trap” (declining industry).
2. Comparing PE / PB across industries: comparing a tech stock PE=30 with a bank PE=6 is meaningless. Each industry has its own reasonable range.
3. Treating MACD as a predictor: MACD is a lagging indicator — use it to confirm a trend, not to predict tops/bottoms.
4. Looking at absolute value, not percentile: is PE=15 expensive or cheap? It depends on its percentile over the past 5 years. Percentile matters more than the absolute number.

5. Suggested reading order after this

• Want “momentum” details → [K05 MACD basics] → [K05 MACD divergence] → [K05 reading MACD]
• Want “valuation” details → [K09 PE deep dive] → [K09 PB / PS] → [K09 PEG / DCF]
• Want “how to combine” → [K06 indicator combo practice]
• Want “why just a few is enough” → [How to pick important indicators (meta-method)] (#)

📌 Remember in one line: MACD reads direction and strength, PE / PB read expensiveness; combine the three and you beat any “buy on golden cross” rule.

⚠️ This article is a methodological illustration and does not constitute any investment or trading advice. Markets are risky; decide with caution.