MACD Indicator

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(Please check the Moving Average and Moving Average Crossover prior to reading this if you are not familiar with)

MACD stands for Moving Average Convergence Divergence.  It combines averages in order to identify  emerging   Trends.

In summary the MACD indicator is calculated by subtracting a longer moving average from a shorter moving average and then these differences are plotted against their Moving Average to look for crossovers.

The MACD indicator requires the following three elements.

Fast EMA(12):  The number of periods of a faster moving average (exponential).

Slow EMA(26):  The number of periods of a slower  moving average (exponential).

MA Signal(9):   The number of periods used to calculate the Simple Moving Average of the  diffenerence between the Fast EMA and Slow EMA

MACD(12,26,9) is the most commonly used.

Calculation:

MACD Line : EMA(12)-EMA(26)

MACD Signal:  SMA(MACD Line)

macd

How to trade with MACD

1) You can compare the MACD Line against its MA Signal (similar to using the Moving Average Crossover method)

Whenever the MACD Line  crosses its  MA signal from above it is a signal to sell.

Whenever the MACD Line  crosses its  MA signal from bellow it is a signal to buy.

2)  You can compare the MACD Line against the 0 line (x-axis)

Whenever the MACD Line  crosses  the 0  from above it is an additional signal to sell.

Whenever the MACD Line  crosses its  MA signal from bellow it is an additional signal to buy.

Signals where both of the two apply are stronger.

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