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Moving Average Convergence/Divergence

The moving average convergence divergence (MACD) uses two exponential moving averages in its calculation. The MACD consists of two lines and a histogram. The MACD line is the difference between the 12 and 26 period exponential moving averages (EMA). The signal line is simply a 9 period EMA of the MACD line.


The MACD histogram is the difference between the 2 lines (MACD line -MACD signal line).

When the MACD line is above the signal line, the histogram is positive. When the MACD line is below the signal line, the histogram is negative.

Signals

MACD is useful at spotting divergences at tops and bottoms. Buy/sell signals are generated by either a change in slope of the MACD line or a crossing of the MACD and MACD signal lines. In other words, a buy signal occurs when the MACD line crosses above the MACD signal line. The exact same signal occurs when the histogram crosses above the 0 line. A change in slope of the histogram can indicate an early change in trend, although this is not a very reliable signal since the slope of the histogram can change often.