Moving average convergence/divergence (MACD) is a technical indicator to help investors identify price trends, measure trend momentum, and identify entry points for buying or selling. Moving average convergence/divergence (MACD) is a trend-following momentum indicator that shows the relationship between two exponential moving averages (EMAs) of a security’s price. MACD was developed in the 1970s by Gerald Appel, and is one of the most popular technical tools, readily available on most trading platforms offered by online stock brokers.
Key Takeaways
- Moving average convergence/divergence (MACD) is a technical indicator to help investors identify entry points for buying or selling.
- The MACD line is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA.
- The signal line is a nine-period EMA of the MACD line.
- MACD is best used with daily periods, where the traditional settings of 26/12/9 days is the default.
MACD Formula
MACD is calculated by subtracting the long-term EMA (26 periods) from the short-term EMA (12 periods). An EMA is a moving average (MA) that places a greater weight and significance on the most recent data points.
Using MACD
MACD has a positive value (shown as the blue line on the MACD chart) whenever the 12-period EMA (indicated by the red line on the price chart) is above the 26-period EMA (the blue line in the price chart), and a negative value when the 12-period EMA is below the 26-period EMA. The distance between MACD and its baseline depends on the distance between the two EMAs.
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