MACD

The MACD (Moving Average Convergence / Divergence ) ( for German: an indicator of the Moving Average ) is a trend-following technical indicator. It was introduced in 1979 by Gerald Appel and is often used because of its versatility. The MACD is calculated from the difference between two exponential moving averages. For the analysis it is usually used in conjunction with a signal line (trigger).

Calculation

The basis for calculating the MACD consists of two different exponentially weighted moving averages (EMA ). Then, from the values ​​of the average shorter the longer are subtracted and the result is the MACD:

The weighting factor of the exponential average of the MACD calculation

This is

  • T is the time index,
  • C for the closing price ( Close)
  • L for the weighting factor of the previous average.

As a starting value for the first value of the EMA you take the associated value of the time series. That is used as the time series and the closing prices start at this then is the.

Appel used as the default setting ( 12, 26, 9) in the weekly chart, as this suited his observation of market cycles. Originally he also used different parameters for buy and sell signals. For the latter, he chose a longer period settings. The above-mentioned parameters, however, have held as the only default values.

For the short-and long -term exponential average of the selected time unit can be used as a rule, the closing prices.

Signal line and MACD are each represented as a line in a two-line model.

These default settings can be changed to adjust the MACD for your own strategy.

Interpretation

Trending

  • A positive MACD indicates an upward trend, a negative MACD on a downward trend. The distance between the MACD from its zero line indicates the strength of the trend. As the distance increases, the trend strength.
  • If the distance of signal line and MACD, the trend strengthened, the distance decreases, the trend is weakening.
  • In the reverse crosses sell signals can be generated (Note: for buy and sell signals, different sets of parameters can be used (see above) ).
  • Instead of the signal line, the reference line can be used.

Divergences

Another use is the MACD in the so-called divergence analysis. This searches for new extremes in the course, which are not confirmed in the MACD.

Power of the course, for example, higher highs and they are also not confirmed by new highs in the MACD, it is called a bearish divergence. This indicates a possible trend change, because the upward momentum is weakening.

This applies vice versa for lower lows in the course, which are not confirmed in the indicator ( bullish divergence).

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