MACD

Introduction

The Moving Average Convergence Divergence (MACD) was developed by Gerald Appel and is used to compare two exponential moving averages to determine the strength of a trend. The MACD is an oscillator that can trend positively or negatively, without any limits. MACD is one of the most popular indicators for technical analysts due to its simplicity and its availability in almost every charting service.

How to Calculate the MACD

The MACD is calculated by taking the difference of the larger exponential moving average from the smaller exponential moving average. The most common values for the larger and smaller exponential moving averages are 12 and 29 respectively. The last part of the MACD is to plot a moving average on the indicator, to provide buy and sell triggers. The most common moving average used on the MACD is the 9-period.

How to Interpret the MACD

The MACD will oscillate between negative and positive territories. If the MACD is above 0, the assumption is the stock is trending positively, conversely if the MACD is below 0, it implies the stock is trading negatively. Extreme MACD readings are an indication that the stock is trending strongly

How to trade the MACD

Below are a some common techniques for trading the MACD:

• Buy when the MACD crosses above 0
• Sell when the MACD crosses below 0
• Buy when the MACD crosses above its 9-period moving average
• Sell when the MACD crosses below its 9-period moving average
• Ignore MACD buy/sell signals if the MACD is flat lining on the zero line.

Trading examples for the MACD

The below trading examples will depict actual trading charts. Please note that while these are actual examples, the MACD indicator will not always provide such clean results. I am just attempting to depict clear trading examples for your understanding. Remember, no one indicator or trading technique will guarantee trading success.

MACD buy signal:

MACD sell signal:

See You At the Top,
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