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MACD

The MACD is an indicator used in technical analysis, and Day Trading to recognise trends in the price of a stock, and is in fact usable both over long-term and short-term trading. The indicator is a calculation that shows a difference between the EMA calculations of fast and slow differences (commonly the 12-day and 26-day EMA).

a Signal line is then calculated as a 9-day EMA and a histogram is usally represented against the zero-line to show the difference between the two lines, and this thus makes the MACD very similar to the TSI in calculations, but has the added benefit of the MACD histogram calculation.

ApplicationEdit

The MACD line crossing above the signal line indicates a Buy condition and conversely, the signal line crossing above the MACD indicates a Sell condition, although in a higly ranging instrument, it may well be necessary to apply another study to verify if the trade is viable.

Another significant interpretation is when the MACD line crosses through the zero line; if the MACD lin moves above, this is considered to be a bullish signal, and similarly, crossing below the zero line indicates a bearish potential.

Positive divergences can also be seen when the price makes a new low but the MACD fails to make a new low; this would indicate that a bullish divergence could occur and that selling of the stock is coming to an end, indicating a buy opportunity, similarly, if the price makes new high while the MACD fails to indicates a negative divergence and creates a Selling/Shorting opportunity.

Similarly, sharp spikes in the MACD histogram can indicate that the price has become an extreme and may well return towards its previous prices, although particularly volatile stocks, or those reacting due to news are likely not to adhere to this as much.

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