The Moving Average Convergence Divergence (MACD) is a versatile indicator that combines trend following and momentum principles into a single tool.
Components of MACD
- MACD Line: Difference between 12-period and 26-period EMAs
- Signal Line: 9-period EMA of MACD Line
- MACD Histogram: MACD Line minus Signal Line
Key Trading Signals
1. Signal Line Crossovers
- Bullish: MACD crosses above Signal Line
- Bearish: MACD crosses below Signal Line
2. Centerline Crossovers
- Bullish: MACD crosses above zero
- Bearish: MACD crosses below zero
3. Divergences
- Regular divergence: Trend reversal signal
- Hidden divergence: Trend continuation signal
Best Practices
- Combine with trend analysis
- Use multiple timeframe analysis
- Consider market context