MACD Indicator Oscillator Technical Analysis Fast Line & Signal Line
MACD indicator is used in various ways to give technical analysis data.
- MACD center-line crosses indicate bullish or bearish markets: below zero is bearish, above zero is bullish.
- MACD Cross-overs indicate a buy or sell signal.
- Oscillations can be used to indicate oversold & overbought regions
- Used to look for divergence between stock price & indicator.
Construction of MACD
The MACD indicator is constructed using two exponential moving averages and this indicator plots two lines. The two default exponential moving averages used are 12 & 26. Then a smoothing factor of 9 is also applied when drawing the MACD.
Summary of how MACD indicator is drawn
MACD uses 2 EMAs + a smoothing factor (12, 26 Exponential MAs & 9 smoothing periods)
MACD technical indicator only plots two lines - the MACD fast line and the MACD signal line
MACD Lines - MACD Fast-Line and MACD SignalLines Trading Signals
- The FastLine is the difference between the 26 EMA and 12 EMA
- The Signal Line is the 9 period moving average of the MACD fast line.
Implementation of MACD
MACD indicator implements the MACD line as a continuous line while the signal line is implemented as a histogram. These two MACD LINES are then used to generate signals using the crossover trading strategy.
There's also the MACD center line which is also referred to as the zero mark & it's a neutral point between buyers & sellers trading the trading market.
Values above the center-mark are considered bullish trading signals while those below are bearish stock signals.
The MACD indicator being an oscillator indicator, oscillates above & below this center line.
