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Moving Average Convergence Divergence MACD


What is the MACD?

The Moving Average Convergence Divergence, or MACD, is a technical analysis indicator that is used to determine trend, strength and momentum. It is generally seen as the MAC Daddy (pun intented) of all indicators for this very reason. It combines the trend signals of moving averages, strength signals with the histogram, and momentum with the settings of a fast or slow MACD.

macd

What is the MACD made of?

The MACD is made up of three exponential moving averages, typically the 26-day and 12-day. The MACD is the 12-day exponential moving average minus the 26-day exponential moving average. Also, the 9 day EMA of the MACD, called the signal line, is used to spot buy and sell signals. A MACD Histogram is also often used to show the momentum and is calculated as the difference between the MACD and the MACD signal line.

 

How to Use the MACD to Trade

The moving average convergence divergence can be used to determine a change in trend. When the MACD line crosses the signal line traders are signaled to buy or sell based on which line is on top. When the MACD line crosses the MACD Signal line from underneath and rises up, that is a signal to buy as soon as the MACD line crosses the zero bar. On the other side, when the MACD Signal line crosses the MACD line from above and drops down, that is a signal to sell as soon as the MACD crosses the zero bar.

 

The Moving Average Convergence Divergence is a pretty simple indicator to pinpoint trending markets. For more on how to use indicators in any type of market, sign up for our newletter, 12 Indicators to Master Any Market from Miss Wallstreet!

 

Photo Credits: http://en.wikipedia.org/wiki/File:MACDpicwiki.gif

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  3. [...] another indicator to bolster their confidence in the signals they receive. RSI works well with the moving average convergence divergence indicator or MACD, as well as candlestick [...]

  4. [...] are high at the upper band and low at the lower band. The middle band is a simple moving average that is a measure of the intermediate term trend. The middle band serves as a base for the upper [...]

  5. [...] to the MACD which uses a 26 period moving average, the Chikou Span is a lagging span that plots recent price [...]

  6. [...] daily chart set up is the opportunity presented on the AUD/USD 15 minute chart. I have a 20 period moving average set up. On this time frame chart, that means that each candlestick represents 15 minutes of data. [...]

  7. [...] 12 and 26 EMA are used in creating the moving average convergence divergence so those would be assumed to be the most popular setting. However, the 200 EMA is very popular as [...]

  8. [...] There is also a linear weighted moving average and several other moving averages that you can use. Most traders who use moving averages use the exponential or simple moving average with a 200 period setting. When the price is above the 200 period moving average line they buy, and when the price is below the 200 period moving average line they sell. This is a simple way to trade with moving averages. [...]

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