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Moving Average Convergence Divergence (MACD)

Utility: Evaluating the Trend / Providing Trading Signals

Standard Settings: 12 periods Fast, 26 periods Slow and 9 periods SMA (12,26,9)

The Moving Average Convergence Divergence or MACD is certainly one of the most widely used indicators especially as concerns the Foreign Exchange Market. MACD is able to identify the strength of any trend and to provide buy and sell trading signals.

MACD is also known for its ability to evaluate the momentum of a strong trend.

 

Calculating MACD

■ MACD Line = { Exponential Moving Average (12 periods) – Exponential Moving Average (26 periods) }

The MACD line is used as a measure of the convergence and the divergence of the fast and slow EMAs (Exponential moving averages).

■ Signal Line = { Exponential Moving Average (9 periods) of MACD Line }

The MACD signal line is used as an indicator of the directional change of the MACD line

■ MACD Histogram = MACD Line – Signal Line

The MACD histogram reflects the difference between the MACD line and the MACD signal line. The MACD histogram is positive when the MACD line is above the MACD signal line. The MACD histogram is negative when the MACD line is below the MACD signal line.

Moving Average Convergence Divergence

MACD Signal line crossovers

□ When the MACD turns higher and crosses the MACD signal line then a buying signal is generated.

□ When the MACD turns down and crosses, below, the MACD signal line then a selling signal is generated.

 

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The Moving Average Convergence Divergence or MACD

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