Moving Average Convergence Divergence (MACD) What It Is: How It
Works/Example: The MACD is used by traders to determine when to
buy or sell a security, based on the interaction between a line
constructed from two moving averages and a "trigger line." The
MACD line is constructed from two moving averages -- a
12-period, or faster moving average, and a 26-period, or slower
moving average. The MACD calculation subtracts the 26-period
from the 12-period to create a single line. This is known as the
main line. The next step is to compute the nine-period
exponential moving average of the main line. This line is then
called the trigger line. It is the interaction between the main
line and the trigger line that certain types of trading signals
are generated. Also note that the MACD is plotted on a chart
with zero as the equilibrium. The amount of divergence between
the main line and trigger line is also plotted on this chart.
During a period when there is a strong trend, the two MACD lines
will grow further apart (di