Stock Quotes |
|
Stock Charts |
|
Trading Information |
INVESTOR INFO |
|
|
|
Overview
The MACD ("Moving Average Convergence/Divergence") is a trend following
momentum indicator that shows the relationship between two moving averages
of prices. The MACD was developed by Gerald Appel,
The MACD is the difference between a 26-day and 12-day exponential
moving average. A 9-day exponential moving average, called the "signal"
(or "trigger") line is plotted on top of the MACD to show buy/sell
opportunities. (Appel specifies moving averages as percentages. Thus, he
refers to these three moving averages as 7.5%, 15%, and 20% respectively.)
Interpretation
The MACD proves most effective in wide-swinging trading markets. There
are three popular ways to use the MACD: crossovers, overbought/oversold
conditions, and divergences.
Crossovers
The basic MACD trading rule is to sell when the MACD falls below its
signal line. Similarly, a buy signal occurs when the MACD rises above its
signal line. It is also popular to buy/sell when the MACD goes above/below
zero.
Overbought/Oversold Conditions
The MACD is also useful as an overbought/oversold indicator. When the
shorter moving average pulls away dramatically from the longer moving
average (i.e., the MACD rises), it is likely that the security price is
overextending and will soon return to more realistic levels. MACD
overbought and oversold conditions exist vary from security to security.
Divergences
A indication that an end to the current trend may be near occurs when
the MACD diverges from the security. A bearish divergence occurs when the
MACD is making new lows while prices fail to reach new lows. A bullish
divergence occurs when the MACD is making new highs while prices fail to
reach new highs. Both of these divergences are most significant when they
occur at relatively overbought/oversold levels.
|