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MACD

MACD also known as the Advanced Moving Average Convergence-Divergence is one of the most widely used technical indicators in the world.


There are two modifications of MACD indicator: linear MACD и MACD histogram. Momentum is determined by subtracting the longer moving average from the shorter moving average and plotting the results, which may be above or below zero. 


MACD = EMA(9)(A)

A = EMA (12) (İ) - EMA (26) (İ)

i = Current price value


MACD being both a trend and momentum indicator can be applied to daily, weekly or monthly charts. Daily and hourly charts often give decent results. Strong trading signals are generated if the MACD crosses a zero line. Divergences are less frequently observed MACD signals. When the MACD crosses the zero line from below, a new uptrend may be emerging. This is a buy signal. When the MACD crosses the zero line from above a new downtrend may be emerging. This means a sell signal.


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The standard model uses a 12 and 26 day exponential moving average.

MACD HISTOGRAM USAGE

    MACD histogram is used as a measurement of the difference between the MACD line and the signal line. It is also a  tool used which indicates in advance about the possibility of a reversal. Trading decisions must be confirmed at least by 2 different signals;
  • Crossover of previous tops and bottoms is also a strong trade signal;

  • Signals resulted from crossover of MACD zero line are not reliable. Because of the lagging characteristics, at times, we may get the signal quite late and hence may miss the opportunity to take the trading decision at the right time.

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