MACD

MOVING AVERAGE CONVERGENCE DIVERGENCE (MACD)

The MACD is a moving averageoscillator that shows potential overbought/oversold phases of marketfluctuation. The MACD is a calculation of two moving averages of the underlyingprice/indicator. Buy/Sell interpretations may be derived from crossovers(calculated from the Signal Periods parameter), overbought/oversold levels ofthe MACD and divergences between MACD and actual price.

The MACD ("Moving Average ConvergenceDivergence") is a trend following momentum indicator that shows therelationship between two moving averages of prices. MACD uses exponentialmoving averages, which are lagging indicators, to include some trend-followingcharacteristics. These lagging indicators are turned into a momentum oscillatorby subtracting the longer moving average from the shorter moving average. Theresulting plot forms a line that oscillates above and below zero, without anyupper or lower limits. MACD is a centered oscillator.

The MACD is the differencebetween a 26-period and 12-period exponential moving average. A 9-periodexponential moving average, called the signal line is plotted on top of the MACD to show buy/sell opportunities

The MACD proves most effective inwide-swinging trading markets. The basic MACD trading rule is to sell when theMACD falls below its signal line, a buy signal occurs when the MACD rises aboveits signal line. It is also popular to buy/sell when the MACD goes above/belowzero. The MACD is also useful as an overbought/oversold indicator.