Moving Average Convergence and Divergence (MACD)

Moving Average Convergence and Divergence (MACD)

MACD can be used to identify overall trend of a security .The Moving Average Convergence and Divergence (MACD) indicator was created by Gerald Appel in the late 1970s . Moving Average Convergence and Divergence (MACD) is calculated using a 12 day EMA and a 26 day EMA. Another key point is both the EMA’s are based on the closing prices. We deduct the 26 EMA from the 12 day EMA, to estimate the convergence and divergence value. However this is not always the case ,for instance you can use Short-term intervals – 3, 5, 7, 9, 11, 12, 14, 15-day . For Long-term intervals – 21, 26, 30, 45, 50, 90, 200-day . Besides this 9-day and 12-day duration are more popular in short term . Where as 26-day, 50-day intervals are more used for long term intervals .

  1. The view point is bullish when the MACD line crosses 9 day EMA . Whenever MACD line is greater than the 9 day EMA a trader should look at buying opportunities .
  2. The view point is bearish when the MACD line crosses below the 9 day EMA . whenever MACD line is lesser than the 9 day EMA a trader should look at selling opportunities .
  3. MACD crossing above zero (signal line) is considered bullish, while crossing below zero is bearish.
  4. Where as when MACD turns upwards from below zero it is considered bullish.
  5. When it turns down from above zero it is considered bearish.
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