The Moving Average Convergence Divergence

Samantha Silberstein is a Certified Financial Planner, FINRA Series 7 and 63 licensed holder, State of California life, accident, and health insurance licensed agent, and CFA. She spends her days working with hundreds of employees from non-profit and higher education organizations on their personal financial plans. If you’re not already a pro at reading forex charts, you’ll want to start there and then come back to us.

The MACD is calculated by subtracting the 26-period exponential moving average value from the 12-period exponential moving average. In both cases here the MACD acts as an indicator of strong trends, but in side-moving markets, it can give false signals. This means that it can provide interesting signals on emerging trends with strong momentum, but it does not point out oversold or overbought markets.

  • The moving average convergence divergence index was invented by Gerald Appel in the 1970s.
  • Moomoo makes no representation or warranty as to its adequacy, completeness, accuracy or timeliness for any particular purpose of the above content.
  • Both MACD and Stochastic provide signals at certain points on price charts where there is a crossover between two lines.
  • On the other hand, a chart in a consolidation is one that is barely moving.
  • As the name suggests, the MACD is derived from moving averages.
  • This technical analysis guide explains what the moving average convergence divergence indicator is, and how traders use it to exercise trading strategies. can seem complicated at first glance, because it relies on additional statistical concepts such as the exponential moving average . But fundamentally, MACD helps traders detect when the recent momentum in a stock’s price may signal a change in its underlying trend. This can help traders decide when to enter, add to, or exit a position.

When looking at the indicator, the Signal Line is considered the “slower” moving average. When looking at the indicator, the MACD Line is considered the “faster” moving average. The first is the number of periods that are used to calculate the faster-moving average. This chart of the E-mini S&P 500 Index Future shows bearish and bullish divergences. Another potential buy and sell signal is shown in the graph above in the Nasdaq 100 exchange-traded fund QQQQ chart. When the shorter-term 12-period EMA crosses above the longer-term 26-period EMA, the MACD line crosses above the Zero line.

Conversely, if the MACD line is trending lower as the price records a higher high, a bearish divergence occurs, indicating the price movement may turn bearish. A bullish centreline crossover occurs when the MACD line moves above the zero line, in other words, turning positive. This occurs when the 12-unit period EMA moves above the 26-unit period EMA. MACD will remain positive as long as there is a sustained uptrend. MACD will remain negative when there is a sustained downtrend. A third, dotted exponential moving average of the MACD (the “trigger” or the signal line) is then plotted on top of the MACD.

Things To Watch For When Trading Crypto With The MACD

The MACD is both a trend and momentum indicator/oscillator that shows the relationship between two moving averages of an asset’s price. The MACD line results from subtracting the 26-period exponential moving average from the 12-period EMA. Moving average convergence-divergence is one of the most popular momentum indicators used by traders. MACD takes 2 moving averages and turns them into a momentum oscillator by subtracting the longer period moving average from the shorter period moving average. What makes MACD unique among oscillators is that it can be used as a trend tracking tool or momentum indicator.

It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Past investment performance does not indicate or guarantee future success.

Moving Average Convergence Divergence (MACD)

Exponential moving averages highlight recent changes in a stock’s price. By comparing EMAs of different lengths, the MACD series gauges changes in the trend of a stock. The difference between the MACD series and its average is claimed to reveal subtle shifts in the strength and direction of a stock’s trend.

  • A divergence trade is not as accurate as it appears in hindsight because past data will only include successful divergence signals.
  • An indication that the end of the current trend may be near occurs when the MACD diverges from the symbol.
  • Even though the MACD does not have upper and lower limits, chartists can estimate historical extremes with a simple visual assessment.

The has a zero line to indicate positive and negative values. The MACD has a positive value whenever the 12-period EMA is above the 26-period EMA and a negative value when the 12-period EMA is below the 26-period EMA. Calculate a 26-period EMA of the price for the chosen time period.

However, MACD divergence cannot be the sole indicator of a reversal of prices. This is because MACD trend lines will diverge as soon as the price begins to level out because price momentum cannot last indefinitely. Moving Average Convergence Divergence is a technical indicator developed by Gerald Appel that signals overbought and oversold conditions by measuring the intensity of public sentiment. The Moving Average Convergence/Divergence indicator is created by calculating the difference between the 12 day and 26 day exponential moving averages . Traders will often combine this analysis with the RSI or other technical indicators to verify overbought or oversold conditions.

How to Read MACD ?

The MACD is a technical indicator designed to help traders and investors identify and time potential buy and sell opportunities. Namely, if the crossover indicates an entry point, but the MACD line indicator is below the zero line , market conditions are still likely to be bearish. On the other hand, if a signal line crossover suggests a potential exit, but the MACD line indicator is above the zero line , market conditions may still be observed to be bullish. The next chart shows 3M with a bullish centerline crossover in late March 2009 and a bearish centerline crossover in early February 2010.

average convergence divergence

A bullish crossover happens when the MACD starts rising and then goes above the signal line. A bearish crossover happens when the MACD starts declining and crosses the signal line to the downside. No content on the website shall be considered as a recommendation or solicitation for the purchase or sale of securities, futures, or other financial products. All information and data on the website are for reference only and no historical data shall be considered as the basis for predicting future trends.

This scan reveals stocks that are trading above their 200-day moving average and have a bullish signal line crossover in MACD. Notice that MACD is required to be negative to ensure this upturn occurs after a pullback. The MACD line is the 12-day Exponential Moving Average less the 26-day EMA. A 9-day EMA of the MACD line is plotted with the indicator to act as a signal line and identify turns. The MACD Histogram represents the difference between MACD and its 9-day EMA, the signal line.

It’s easy to configure and is available on most software trading platforms. Simply add the MACD to your cryptocurrency chart, evaluate the data, and begin crafting trading decisions. As long as solid risk-management parameters are consistently adhered to, the MACD strategy is a viable way of engaging today’s cryptocurrency markets.

CAPEX Academy has lots of courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader. All services are free, so you to take advantage of the opportunities that Forex trading offers. Department of Justice to deliver file sharing and information management to the agency’s workforce. After rigorous assessment, Box will receive an agency Authorization to Operate this week, allowing the DOJ to leverage the platform across all its component agencies.” The following code example demonstrates how to add Moving Average Convergence Divergence indicator and Moving Average Convergence Divergence Histogram Oscillator to the FinancialChart.

First and foremost, the MACD is designed to be a trend trading indicator. Accordingly, its strongest applications will be in spotting new trends and entering existing trends. One of the ways in which the MACD is especially useful is within the implementation of multiple time frame analysis. By applying the MACD to long-term, intermediate-term, and intraday charts, you can get a good idea of how micro price action fits into the broader, macro market direction. In this way, it is possible to fine-tune market entry on an existing trend or get in on a budding trend early. Although a higher risk strategy, the MACD may also be used to trade market reversals.

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The next chart shows Pulte Homes with at least four centerline crosses in nine months. The resulting signals worked well because strong trends emerged with these centerline crossovers. As a moving average of the indicator, it trails the MACD and makes it easier to spot MACD turns. A bullish crossover occurs when the MACD turns up and crosses above the signal line. A bearish crossover occurs when the MACD turns down and crosses below the signal line.

Generally speaking, MACD crossing the zero line or the central line is a buy or sell indication. The zero line from the bottom is a buy signal, and the central line cutting from the top is a sell signal. However, the zero-line crossover rules have a disadvantage; the events occur with a lag. The moving average convergence divergence is a technical indicator that shows the relationship between two moving averages of an asset’s price. Its purpose is to reveal changes in a trend’s direction, strength, momentum, and duration in the underlying security’s price.


It’s time to buy when the MACD line crosses above the signal line. The basic MACD trading rule is to sell when the MACD falls below its signal line. Similarly, a buy signal occurs when the Moving Average Convergence/Divergence rises above its signal line. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.

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Still, the MACD settings may be customized to accommodate different trading strategies. As a moving average of the indicator, it trails MACD and makes it easier to spot turns in MACD. A bullish crossover occurs when MACD turns up and crosses above the signal line. A bearish crossover occurs when MACD turns down and crosses below the signal line. Crossovers can last a few days or a few weeks, it all depends on the strength of the move. An indication that the end of the current trend may be near occurs when the MACD diverges from the symbol.

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Margin involves interest charges and heightened risks, including the potential to lose more than invested funds or the need to deposit additional collateral. The crossovers of the MACD line and the signal line can indicate a price change trend. MACD indicators can be interpreted as crossovers and divergences. It allows you to enter trades with price momentum on your side.’ – Christian Bendixen, Bay Crest Partners.

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