What is Moving Average Convergence Divergence (MACD)?


What is MACD?

MACD stands for Moving Average Convergence Divergence is a momentum indicator used by technical traders that calculates the interconnection between 2 EMA (Exponential Moving Averages). In MACD (Moving Average Convergence Divergence) there is fast EMA (Exponential Moving Average) of length 12, slow EMA of length 26, and a single line of length 9 by default in general. There is also a graph looking thing called histogram which is the difference between the MACD (Moving Average Converging Divergence) line and Single Line.


MACD Line = 12 periods EMA (Exponential Moving Average) – period 26 EMA (Exponential Moving Average)

Single Line = 9 period EMA (Exponential Moving Average)

Histogram = the difference MACD Line and Single Line

How to use it?

Usually, traders use its crossovers for buy/sell or entries/ exits, but standalone using MACD (Moving Average Converging Divergence) is not a good idea. Use it with some kind of strategy.

When the MACD line (Blue color) crosses over Signal Line (Red color) below the histogram then it’s a buy signal and when Signal Line (Red color) crosses below the MACD Line (Blue color) above the Histogram, then it’s a sell signal. Note: Crossover may happen anywhere and anytime which can be a false signal also.

Live Example

What is Moving Average Convergence Divergence (MACD)? 1

As you can see we may get some beautiful swings with this but not always work and give false signals combine with some sort of strategy to increase accuracy.

Live Example

Note: Always Trade indicators signals wisely with proper risk management and strategy else your trading funds will always at high risk.

Also Read: What is RSI Divergence