MACD: Moving Average Convergence Divergence



 

The MACD is basically a refinement of the two moving averages system and measures the distance between the two moving average lines. Signals are taken when MACD crosses its signal line, calculated as a 9 day exponential moving average of MACD.

The indicator is primarily used to trade trends and should not be used in a ranging market.

MACD was developed by Gerald Appel and is discussed in his book, The Moving Average Convergence Divergence Trading Method. For further details, see MACD Construction.

Trading Signals

First check whether price is trending. If MACD is flat or stays close to the zero line, the market is ranging and signals are unreliable.

Trending Market

Signals are far stronger if there is either:

Unless there is a divergence, do not go long if the signal is above the zero line, nor go short if the signal is below zero.

Place stop-losses below the last minor Low when long, or the last minor High when short.

Example

Microsoft Corporation chart with: MACD, and  MACD signal line.

Go short - MACD crosses to below the signal line after a large swing. Go long - MACD crosses to above the signal line. Strong short signal - MACD crosses after a large swing and bearish divergence (shown by the trendline). Go long. Flat MACD signals that the market is ranging - you are
 more likely to be whipsawed in/out of your position. Exit long trade but do not go short - MACD is significantly below the
 zero line. Re-enter your long trade. Go short - MACD crosses to below the signal line after a large swing. Go long - MACD crosses to above the signal line. Strong short signal - MACD crosses after a large swing and bearish divergence (shown by the trendline). Go long. Flat MACD signals that the market is ranging - you are more likely to be whipsawed in/out of your position. Exit long trade but do not go short - MACD is significantly below the zero line. Re-enter your long trade.

  1. Go short [S] - MACD crosses to below the signal line after a large swing.
  2. Go long [L] when MACD crosses to above the signal line.
  3. Strong short signal [S] - the MACD crosses after a large swing and bearish divergence (shown by the  trendline).
  4. Go long [L]. Flat MACD signals that the market is ranging - we are more likely to be whipsawed in/out of our position.
  5. Exit long trade [X] but do not go short - MACD is significantly below the zero line.
  6. Re-enter your long trade [L].

Setup

The default settings for the MACD are:

Edit Indicator Settings to change the settings. See Indicator Panel for directions on how to set up an indicator.

Captions and trendlines: Use MACD Histogram if you want to draw trendlines or place captions on the histogram. Otherwise, they are left "hanging in the air" if you zoom or change time periods.


Related Topics

Moving Averages

A powerful measure of trend direction, achieved by smoothing price data...


Two Moving Averages

Fast and slow moving averages provide a powerful measure of trend strength and direction...


MACD Histogram

The histogram provides far earlier and more responsive signals than the original MACD. Unfortunately it is also more volatile...


MACD Construction

MACD is calculated as the difference between a fast (12-day) and slow (26-day) moving average...



 



 

External Links

Divergence (MACD)

Moving Average Convergence/Divergence (MACD) -- Chart School
 

Learn the How, the What, and the Where of technical analysis and stock charting.


MACD Part 1 -- Chart School
 

One of the simplest and most reliable indicators available, MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics.


MACD Part 2 -- Chart School
 

One of the simplest and most reliable indicators available, MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics.


MACD Part 3 -- Chart School
 

One of the simplest and most reliable indicators available, MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics.


MACD Part 4 -- Chart School
 

MACD is one of the most popular and easy to use tools available to the technical analyst. By using an average of prices, moving averages smooth a data series and make it easier to spot trends.


MACD - Technical Analysis from A to Z
 

MACD - Steve Achelis' best-selling book, Technical Analysis from A to Z


MACD