Quick Summary of MACD: The MACD is a moving average oscillator that shows potential overbought/oversold phases of market fluctuation. The MACD is a calculation of two moving averages of the underlying price/indicator. Buy/Sell interpretations may be derived from crossovers (calculated from the Signal/Periods argument), overbought/oversold levels of the MACD and divergences between MACD and actual price.
- MACD (Moving Average Convergence/Divergence) has in its base Moving Averages.
- It calculates and displays the difference between the two moving averages at any time.
- Standard indicator settings for MACD (12, 26, 9) are used in many trading systems.
- MACD line is created when longer Moving Average is subtracted from shorter Moving Average.
- MACD divergence trading method used not only to predict trend turning points, but also for trend confirmation.
- MACD line and trigger line crossover outperforms EMAs crossover. Besides being early on crossovers MACD also is able to display where the chart EMAs have crossed:
- When MACD (12, 26, 9) flips over its zero line, if indicates that 12 EMA and 26 EMA on the chart have crossed.
- When MACD line crosses Signal line (top or bottom) to evaluate buy or sell.
- Another entry strategy is to find 2 most recent swings high or low on the chart and draw a trend line trough them; and then set an Entry order on the breakout of that trend line.
How to Trade With MACD