In technical analysis, Moving Average Convergence Divergence
(MACD) indicators are used to gauge market trends by averaging
daily closing prices of stocks, commodities or indices. MACD
values are calculated by plotting these daily points in a graph
to allow traders to take a look at the smoothened data, rather
than day to day price fluctuations that are inherent in the
financial markets. The common application of using the moving
average for the past 10 days, 50 days or 200 days is to compare
the latest closing prices of stocks/ indices with the MACD
graph. The thumb rule for further buying in any stock for is to
buy when the latest price points lie above the 50 days or 200
days MACD as this is viewed as a sign of long-term strength in
that stock/index. Conversely, no short positions should be
built, in case the medium term or long term (200 days) moving
average is below the closing line of latest price point of
index. There are two types of moving average followed popularly
in the financial markets. The more