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MACD, Moving Average Convergence Divergence


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MACD, Moving Average Convergence Divergence

The MACD of a stock, is formed by subtracting a long period or slow (exponential) moving average, from a shorter period (exponential) moving average. This is plotted as the red line. We plot the moving average of the MACD line itself as the blue or slow line. Finally we plot the difference between the fast and slow lines as a histogram around the origin.

The MACD is often interpreted one of three ways.

Using the cross between the fast and slow lines, when the fast line crosses above the slow line, that is a bullish (buy) signal, when the fast line below the slow line, that is a bearish (sell) signal.

Centerline cross over. It is bullish when the MACD line crosses to above the zero line, and bearish when is crosses below the zero line.

Finally Divergence. When the MACD moves in the opposite direction to the stocks trend, it may indicate that the trend is over.