What Is MACD Indicator
The MACD (Moving Average Convergence Divergence) is a popular technical analysis indicator used by traders to
identify changes in the strength, direction, momentum, and duration of a stock's price trend. Developed by
Gerald Appel in the late 1970s, it's a momentum oscillator that provides trading signals by showing the
relationship between two exponential moving averages of a security’s price.
The MACD is composed of three components that are typically plotted below the price chart:
- The MACD Line: This is the core of the indicator, calculated by subtracting the 26-period exponential moving
average (EMA) from the 12-period EMA.
- The Signal Line: This is a 9-period EMA of the MACD line itself.
- The MACD Histogram: This represents the difference between the MACD line and the signal line, visually
showing
the divergence or convergence of the two lines.
Traders use the MACD to generate buy and sell signals, primarily through crossovers. A bullish crossover occurs
when the MACD line crosses above the signal line, suggesting upward momentum. A bearish crossover, where the
MACD line crosses below the signal line, indicates downward momentum. The histogram helps visualize this,
growing larger as the lines diverge and shrinking as they converge.