Moving Average Convergence Divergence - MACD

Moving Average Convergence Divergence - MACD

A trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A 9-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger of buy and sell signals.

Notes:

There are three common methods to interpret the MACD:

1. Crossovers - When the MACD falls below the signal line it is a bearish signal, and indicates that it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, and indicates that it may be time to buy.
2. Divergence - When the security price diverges from the MACD, it signals the end of the current trend.
3. Dramatic rise - When the MACD rises dramatically - that is, the shorter moving average pulls away from the longer-term moving average - it is a signal that the security is overbought and will soon return to normal levels.

See also: Crossover, Divergence, EMA, Indicator, Moving Average, Overbought, Oversold, Technical Analysis