Friday, July 19, 2024

MACD

In this article, We learn about “MACD”.Let’s Go!

MACD or “Moving Average Convergence/Divergence” indicator is a momentum oscillator used for trading trends.

MACD plots the distance between moving averages, helping traders identify trend direction and whether bullish or bearish momentum in price is increasing or decreasing.

While MACD is an oscillator, it is not typically used to identify overbought or oversold conditions.

MACD is a trend following indicator as its purpose is to show the difference between two moving averages (MAs).

MACD

How to calculate MACD

MACD, more specifically, the MACD “line” is calculated by subtracting the longer EMA (26 periods) from the shorter EMA (12 periods).

MACD = 12-period EMA – 26-period EMA

The exponential moving average (EMA) is a type of moving average (MA) that gives more weight and importance to recent prices.

The shorter EMA is constantly converging towards or diverging from the longer EMA. This causes the MACD to oscillate around the zero level.

The signal line is created from the 9-period EMA of the MACD line.

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