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--- technical_indicators:moving_average_convergence_divergence_macd [2019/06/24 19:39]
127.0.0.1 external edit
+++ technical_indicators:moving_average_convergence_divergence_macd [2023/07/13 20:59] (current)
jayanthi [How Do You Interpret the MACD?]
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 ====== MACD (Moving Average Convergence/Divergence Oscillator) ======
-===== Introduction =====
+===== What Is the Moving Average Convergence/Divergence Oscillator? =====
-Developed by Gerald Appel in the late seventies, the Moving Average Convergence/Divergence oscillator (MACD) is one of the simplest and most effective momentum indicators available. The MACD turns two trend-following indicators, [[:technical_indicators:moving_averages|moving averages]], into a momentum oscillator by subtracting the longer moving average from the shorter one. As a result, the MACD offers the best of both worlds: **trend following and momentum.** The MACD fluctuates above and below the zero line as the moving averages converge, cross and diverge. Traders can look for signal line crossovers, centerline crossovers and divergences to generate signals. Because the MACD is unbounded, it is not particularly useful for identifying overbought and oversold levels.
+Developed by Gerald Appel in the late seventies, the Moving Average Convergence/Divergence oscillator (MACD), due to its simplicity and general effectiveness, is one of the most popular momentum indicators. The MACD turns two trend-following indicators, [[:technical_indicators:moving_averages|moving averages]], into a momentum oscillator by subtracting the longer moving average from the shorter one. As a result, the MACD offers the best of both worlds: **trend following and momentum.** The MACD fluctuates above and below the zero line as the moving averages converge, cross and diverge. Traders can look for signal line crossovers, centerline crossovers and divergences to generate signals. Because the MACD is unbounded, it is not particularly useful for identifying overbought and oversold levels.
 Note: MACD can be pronounced as either "Mac-Dee" or "M-A-C-D."
-Here is an example chart with the MACD indicator in the lower panel:
+<html>
+<div class="embed-responsive embed-responsive-16by9">
+<iframe src="https://www.youtube.com/embed/jJzo1fxbEEw" width="640" height="360" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
+</div>
+</html>
-{{:technical_indicators:moving_average_convergence_divergence_macd:macd-0-qqqqexam.png?nolink&}}\\
-[[https://stockcharts.com/h-sc/ui?s=QQQ&p=D&st=2009-01-01&en=2009-04-03&id=p70644026533&a=206516339|Click here to see a live version of the chart.]]
-===== Calculation =====
+Below is an example chart with the MACD indicator in the lower panel.
+{{:technical_indicators:moving_average_convergence_divergence_macd:macd-qqqexample-n.png|StockCharts MACD example}}
+[[https://schrts.co/htjRIViR|Click here to see a live version of the chart.]]
+===== How Do You Calculate the MACD? =====
 <code>
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 </code>
-The MACD line is the 12-day [[:technical_indicators:moving_averages|Exponential Moving Average]] (EMA) less the 26-day EMA. Closing prices are used for these moving averages. 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. The histogram is positive when the MACD line is above its signal line and negative when the MACD line is below its signal line.
+The MACD line is the 12-day [[:technical_indicators:moving_averages|Exponential Moving Average]] (EMA) less the 26-day EMA. Closing prices are used for these moving averages. A nine-day EMA of the MACD line is plotted with the indicator, which acts as a signal line and identifies reversals. The MACD Histogram represents the difference between MACD and its nine-day EMA, the signal line. The histogram is positive when the MACD line is above its signal line and negative when the MACD line is below its signal line.
-The values of **12, 26 and 9** are the typical settings used with the MACD, though other values can be substituted depending on your trading style and goals.
+The values of **12, 26, and 9** are the typical settings used with the MACD, though other values can be substituted depending on your trading style and goals.
-===== Interpretation =====
+===== How Do You Interpret the MACD? =====
-As its name implies, the MACD is all about the convergence and divergence of the two moving averages. Convergence occurs when the moving averages move towards each other. Divergence occurs when the moving averages move away from each other. The shorter moving average (12-day) is faster and responsible for most MACD movements. The longer moving average (26-day) is slower and less reactive to price changes in the underlying security.
+**Convergence/Divergence.** As its name implies, the MACD is all about the convergence and divergence of the two moving averages. Convergence occurs when the moving averages move towards each other. Divergence occurs when the moving averages move away from each other. The shorter moving average (12-day) is faster and responsible for most MACD movements. The longer moving average (26-day) is slower and less reactive to price changes in the underlying security.
-The MACD line oscillates above and below the zero line, which is also known as the centerline. These crossovers signal that the 12-day EMA has crossed the 26-day EMA. The direction, of course, depends on the direction of the moving average cross. Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positive values increase as the shorter EMA diverges further from the longer EMA. **This means upside momentum is increasing.** Negative MACD values indicate that the 12-day EMA is below the 26-day EMA. Negative values increase as the shorter EMA diverges further below the longer EMA. **This means downside [[:technical_indicators:introduction_to_technical_indicators_and_oscillators#leading_indicators|momentum]] is increasing.**
+**Oscillator.** The MACD line oscillates above and below the zero line, also known as the centerline. These crossovers signal that the 12-day EMA has crossed the 26-day EMA. The direction, of course, depends on the direction of the moving average cross. Positive MACD indicates that the 12-day EMA is above the 26-day EMA. Positive values increase as the shorter EMA diverges further from the longer EMA. **This means upside momentum is increasing.** Negative MACD values indicate the 12-day EMA is below the 26-day EMA. Negative values increase as the shorter EMA diverges further below the longer EMA. **This means downside [[:technical_indicators:introduction_to_technical_indicators_and_oscillators#leading_indicators|momentum]] is increasing.**
-{{:technical_indicators:moving_average_convergence_divergence_macd:macd-01-hdcalc.png?nolink&}}
+{{:technical_indicators:moving_average_convergence_divergence_macd:macdinterpret-n.png|StockCharts MACD interpretation}}
-In the example above, the yellow area shows the MACD line in negative territory as the 12-day EMA trades below the 26-day EMA. The initial cross occurred at the end of September (black arrow) and the MACD moved further into negative territory as the 12-day EMA diverged further from the 26-day EMA. The orange area highlights a period of positive MACD values, which is when the 12-day EMA was above the 26-day EMA. Notice that the MACD line remained below 1 during this period (red dotted line). This means the distance between the 12-day EMA and 26-day EMA was less than 1 point, which is not a big difference.
+In the example above, the golden shaded area shows the MACD line in negative territory as the 12-day EMA trades below the 26-day EMA. In mid-February, the MACD moved further into negative territory as the 12-day EMA diverged further from the 26-day EMA. The red area highlights a period of positive MACD values, when the 12-day EMA was above the 26-day EMA.
 ===== Signal Line Crossovers =====
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 {{:technical_indicators:moving_average_convergence_divergence_macd:macd-08-spybedv.png?nolink&}}
-===== Conclusion =====
+===== The Bottom Line =====
 The MACD indicator is special because it brings together momentum and trend in one indicator. This unique blend of trend and momentum can be applied to daily, weekly or monthly charts. The standard setting for MACD is the difference between the 12- and 26-period EMAs. Chartists looking for more sensitivity may try a shorter short-term moving average and a longer long-term moving average. MACD(5,35,5) is more sensitive than MACD(12,26,9) and might be better suited for weekly charts. Chartists looking for less sensitivity may consider lengthening the moving averages. A less sensitive MACD will still oscillate above/below zero, but the centerline crossovers and signal line crossovers will be less frequent.
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 Finally, remember that the MACD line is calculated using the actual difference between two moving averages. This means MACD values are dependent on the price of the underlying security. The MACD values for a $20 stocks may range from -1.5 to 1.5, while the MACD values for a $100 may range from -10 to +10. It is not possible to compare MACD values for a group of securities with varying prices. If you want to compare momentum readings, you should use [[:technical_indicators:price_oscillators_ppo|the Percentage Price Oscillator (PPO)]], instead of the MACD.
-===== Using with SharpCharts =====
+===== Using MACD With SharpCharts =====
 The MACD can be set as an indicator above, below or behind a security's price plot. Placing the MACD "behind" the price plot makes it easy to compare momentum movements with price movements. Once the indicator is chosen from the drop-down menu, the default parameter setting appears: (12,26,9). These parameters can be adjusted to increase or decrease sensitivity. The MACD Histogram appears with the indicator or can be added as a separate indicator. Setting the signal line to 1 or leaving it blank, i.e. (12,26,1) or (12,26), will remove the MACD Histogram and the signal line. A separate signal line, without the histogram, can be added by choosing "Exp. Moving Avg" from the Advanced Options Overlays menu.
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 </code>
-For more details on the syntax to use for MACD scans, please see our [[docs>scans:indicators#moving_average_convergence-divergence_macd|Scan Syntax Reference]] in the Support Center.
+For more details on the syntax to use for MACD scans, please see our [[https://support.stockcharts.com/doku.php?id=scans:indicators#moving_average_convergence-divergence_macd|Scan Syntax Reference]] in the Support Center.
 ----
+===== MACD FAQs =====
+==== What does the MACD indicate in trading? ====
+The MACD can be used to analyze the state of the price action and identify potential buy and sell signals. Traders look for signal line crossovers, centerline crossovers, and divergences to generate signals. Positive MACD values indicate that the 12-day EMA is above the 26-day EMA, suggesting increasing upside momentum, while negative values suggest increasing downside momentum.
+==== What is the difference between signal line crossovers and centerline crossovers in MACD? ====
+Signal line crossovers occur when the MACD line crosses above or below the signal line, indicating bullish or bearish signals, respectively. Centerline crossovers occur when the MACD line crosses above or below the zero line, implying that the shorter-term EMA has crossed the longer-term EMA. This can suggest a change in the overall trend of the market.
+==== Can the MACD be used to identify overbought and oversold levels? ====
+The MACD is not particularly useful for identifying overbought and oversold levels as it does not have upper or lower limits to bind its movement. During sharp moves, the MACD can continue to over-extend beyond its historical extremes.
+==== What is the standard setting for MACD? ====
+The standard setting for MACD is the difference between the 12- and 26-period Exponential Moving Averages (EMAs). However, these values can be adjusted to increase or decrease sensitivity depending on the trader's style and goals.
+==== Can MACD values be compared for different securities? ====
+It's important to note that MACD values are dependent on the price of the underlying security, meaning it's not possible to compare MACD values for a group of securities with varying prices. For comparing momentum readings across different securities, the Percentage Price Oscillator (PPO) should be used instead of the MACD.
 ===== Additional Resources =====