Moving Average Convergence Divergence (MACD)

The Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of a security's price. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA.

The MACD is plotted on a chart with a histogram below it. The histogram shows the difference between the MACD and its signal line, which is a 9-day EMA of the MACD.

The MACD is a versatile indicator that can be used to identify bullish and bearish trends, as well as potential trading opportunities.

When the MACD crosses above its signal line, it is a sign of a bullish trend. When the MACD crosses below its signal line, it is a sign of a bearish trend.

The histogram can also be used to identify potential trading opportunities. When the histogram is positive, it indicates that the MACD is above its signal line and that the trend is bullish. When the histogram is negative, it indicates that the MACD is below its signal line and that the trend is bearish.

The MACD can also be used to identify divergences, which can be a sign of a potential trend reversal. A bullish divergence occurs when the price of a security makes a new low, but the MACD makes a higher low. This indicates that the momentum is increasing and that the trend may be about to reverse. A bearish divergence occurs when the price of a security makes a new high, but the MACD makes a lower high. This indicates that the momentum is decreasing and that the trend may be about to reverse.

The MACD is a powerful indicator that can be used to identify trends, potential trading opportunities, and trend reversals. However, it is important to remember that the MACD is not a perfect indicator and that it should be used in conjunction with other technical indicators and fundamental analysis.