What is the Moving Average Convergence-Divergence (MACD)?

What is the Moving Average Convergence-Divergence (MACD): A chart indicator used in the technical analysis of financial markets. Its primary purpose is to track market trends and momentum by measuring the relationship between two moving averages.

Category: Technical analysis indicator

How is the Moving Average Convergence-Divergence (MACD) Used: The MACD is often used to produce trading entry and exit signals. Typically, a crossover of the two moving averages is seen as a change in the trend momentum and a potential trigger to enter a trade in the direction of the crossover. MACD can also be used to indicate market overbought and oversold conditions. The indicator is commonly used to measure price trends and changes in trends.

What Does the Moving Average Convergence-Divergence (MACD) Consist of: The MACD consists of two lines. One is called the MACD line – it is derived by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. The second line is called the signal line – it is simply a 9-period EMA of the MACD line. Trading signals are derived from crossovers of the MACD line and signal line. Generally, when the MACD line crosses above the signal line it is a buy signal, while a MACD line cross below the signal line is a sell signal.

Often, a histogram is also placed on the MACD indicator. The histogram simply gives a measure of the distance between the MACD line and the signal line. When the MACD line is above the signal line, the histogram is positive. When the MACD line is below the signal line, the histogram is negative. When the two lines are crossed, the histogram is at the zero line at the time of the cross.

The MACD indicator is usually placed either above or below the price chart.

What Does the Moving Average Convergence-Divergence (MACD) Look Like:

Chart of the Moving Average Convergence-Divergence (MACD)
Chart of the Moving Average Convergence-Divergence (MACD) – Source: TheTechnicals.com and TradingView

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