The Moving Average Convergence Divergence (MACD) is a technical indicator that shows the relationship between two moving averages of a stock’s price. It is calculated by subtracting a slow moving average period from a fast moving average period. There is also a Signal line which is a certain period’s EMA. Many traders use the MACD to tell direction and to determine when to buy. The green and red bars in the MACD help tell you which direction the stock is moving. Many traders buy when the MACD crosses above the signal line and sell when the MACD crosses below the signal line.
How to Read the MACD
Above is an example of a MACD. It includes points where the MACD crosses above the Signal line and indicates a buy, as well as when the MACD crosses below the Signal line and indicates a sell. The MACD is a very powerful indicator that a multitude of traders use. Many investors are big advocates for the MACD because of its utility. Not only does it indicate buying and selling points, but it also clearly indicates the direction of the stock price with the green and red bars.
How to Configure the MACD
When setting up the MACD, you will first be asked for a Fast Moving Average Period, which
is most commonly 12. Next, you will be asked for a Slow Moving Average Period, which is
8
most commonly 26. Then, you will be asked for a Signal Period, which is most commonly 9.
Finally, you must set up all the colors and you are done. It is important to configure the MACD to your personal preferences and make sure it is appropriate for your strategy.