Moving Average Convergence/Divergence Technical Indicator
Posted by Edward Dy on July 6th, 2008
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Photo credit financeninja
The Moving Average Convergence/Divergence or MACD is a technical analysis indicator that was invented in the 1960s for the purpose of determining the differences between both the fast and slow Exponential Moving Average of closing prices.
As expressed by the MACD, the moving average essentially is the average of a price over a particular set amount of time. The MACD makes it possible to demonstration with ease the relationship between two exponential examples of the moving average.
Generally, a fast EMA would be treated as a MACD within a 12-day time frame, while for that of a slow EMA it would be a 26-day period.
The formula: MACD=EMA[12] of price - EMA[26] of price with a signal line of EMA[9] then plotted over the top of this MACD result, allowing as a trigger point for interpretation of buy and sell signals.
It is generally considered that the moment the MACD plummets below the signal line, it can be treated as bearish and may indicate a time to sell. The contrary would be true if the MACD climbs above the signal line as this indicates a bullish trend - an upward trend in price.
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