MACD

Created by Gerald Appel,

The MA Convergence/Divergence is one of the simplest, reliable, and most often used technical indicators.

It's a momentum oscillator & also a trend-following indicator.

Construction

The construction of this indicator calculates the difference between 2 moving averages and then plots that as 'Fast' line: the second 'Signal' line is then calculated from the resulting 'Fast' line & then drawn on the same panel window as 'Fast' line.

'Fast' line - Blue Line
'Signal' line - Red Line

The 'standard' MACD values for 'Fast' line is a 12-period exponential moving average & a 26-period exponential moving average & a 9-period exponential moving applied to the fast line, this plots 'Signal' line.

Fast-line = difference between 12 and 26 exponential MAs
Signal-line = moving average of this difference of 9-periods

MACD Indicator Analysis Signals

Stock Technical Analysis & Generating Signals

The MACD is oftenly used as a trend-following trading indicator and works most effectively when interpreting trending market movements. The three common techniques of using MACD to generate trade signals are:

Stock Indices Cross Overs Signals:

Fast-line/Signal Line Crossover:

A buy signal is generated when the Fast line crosses above the Signal line
A sell stock signal is generated when the Fast line crosses below the Signal line.

However, in a strong trending market this stock signal gives a lot of whipsaws, the best cross over to use would thus be the Zero Line Crossover Signal that is less prone to whipsaw fakeouts.

Zero Line Crossover Signals:

When the FastLine crosses above zero center line a buy stock trade signal is generated.
when the FastLine crosses below the zero center line a sell stock trading signal is generated.

Divergence Trading:

Looking for divergences between the MACD and price can prove to be very effective in spotting the potential reversal and/or trend continuation points in stock trading price movement. There two types of divergences:

Classic Divergence Setup Signals
Hidden Divergence Trading Signals

Overbought/Over-sold Conditions:

MACD indicator is also used to spot potential overbought-oversold conditions in stock price action movements.

These levels are generated if the shorter MACD Lines separate dramatically from the median, this is an indication that stock trading price action is over-extending & it will soon return to more realistic levels.

MACD and Moving Average Stock Indices Cross Over System

This stock indicator can be combined with others to form a trading system. A good combination with the Moving Average crossover trading method. A signal is generated when both give a signal in same direction.

MACD Stock Indicator Analysis Trading Signals

Technical Analysis in Indices Trading

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