Moving Average Convergence and Divergence (MACD)
What is Moving Average Convergence Divergence (MACD)?
The Moving Average Convergence/Divergence indicator is a momentum oscillator that measures the amount that an asset's price has changed over a given period of time. It is a trend-following momentum indicator that shows the relationship between two exponential moving averages (EMAs) of an asset’s price. The MACD indicator consists of three components:
- MACD line: The MACD line is calculated by subtracting the 26-period EMA from the 12-period EMA, which is generally called DIF.
- Signal line: The signal line is a 9-day EMA of the MACD line, commonly known as DEA which is then plotted on top of the MACD line and can function as a trigger for buy or sell signals.
- Histogram: The histogram is the graphical representation of the divergence and convergence of the MACD line and the signal line. For example, the distance between the two. When the MACD line is above the signal line, the histogram is positive; it is negative when the MACD line is below the signal line.
MACD trading strategies
- MACD line crossing above zero is considered bullish while crossing below zero is bearish. Additionally, when MACD turns up from below zero it is considered bullish. When it turns down from above zero it is considered bearish.
- When the MACD line crosses from below to above the signal line, the indicator is considered bullish. The further below the zero line the stronger the signal. When the MACD line crosses from above to below the signal line, the indicator is considered bearish. The further above the zero line the stronger the signal.
- Divergence between the MACD and the price action is a stronger signal when it confirms the crossover signals.