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2. Moving Average Convergence Divergence (MACD)
The Moving Average Convergence Divergence (MACD) measures the momentum of
price movements. It is constructed by using two exponential moving averages (EMA),
one being the shorter term 12-day EMA, the other the longer term 26-day EMA.
The value of the MACD is calculated by subtracting the longer EMA from the shorter
EMA to form a histogram that oscillates above and below the zero line. However, some
charts plot the value of MACD in terms of line that oscillates around the zero line.
Now that we have the MACD histogram, we need a signal line to tell us when to buy
and when to sell. The signal line, usually in red, is a 9-day EMA of the MACD. Sounds
complicated? Don’t worry, after all, the most important part of this lesson is to know
when to buy and when to sell.
Buy Signal
There are two bullish signals – when the MACD histogram is ascending nicely, and when
the histogram (the blue lines) is above the zero line.
Sell Signal
There are two bearish signals – the MACD histogram is descending, and when the
histogram (the blue lines) is below the zero line.
To know more about technical analysis, please refer to www.stockcharts.com
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| Tip #4 - About Technical Analysis |
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