MACD
Moving Average Convergence/Divergence is a trend following technical indicator.
MACD Setup
- Uses 3 exponential moving averages on price
- Typically the three moving averages used are 12, 26 and 9
- MACD Line: The difference between the 12 period moving average and 26 period moving average creates the MACD line
- Signal Line: The 9 period moving average
- The lines fluctuate above and below a zero line
- Other popular settings are:
- 9-18-9
- 5-34-5 : popularized by Bill Williams. May be more smooth and/or sensitive
Typical MACD Usage
- Buy signals occur when the MACD line crosses above the macd Signal Line
- Sell signals occur when the MACD line crosses below the macd Signal Line
When to use the MACD
- Works well in a trending market
- CAUTION - produces many false signals and whipsaws in a sideways market environment
- REMEMBER - because it's based on moving averages, it's a lagging indicator
Other MACD Usage
- If both lines are above zero, the trend is likely up
- If both lines are below zero, the trend is likely down
- Developed by Gerald Appel in the late 1970s